<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 1999
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BRAND SCAFFOLD SERVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)
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<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 735915 133909681
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
15450 SOUTH OUTER HIGHWAY 40, #270
CHESTERFIELD, MISSOURI 63017
(314) 519-1000
(Address and Telephone Number of Registrant's principal executive offices)
JOHN M. MONTER
CHIEF EXECUTIVE OFFICER AND PRESIDENT
15450 SOUTH OUTER HIGHWAY 40, #270
CHESTERFIELD, MISSOURI 63017
(314) 519-1000
(Name, Address and Telephone Number of Agent for Service)
----------
COPIES TO:
JOSEPH P. HADLEY
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) AGGREGATE OFFERING PRICE REGISTRATION FEE(2)
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<S> <C> <C> <C> <C>
14.5% Senior Exchangeable Preferred Stock
due 2008, $0.01 par value per share ........ 209,000 shares $ 34.44 $7,197,960 $2,002
- -----------------------------------------------------------------------------------------------------------------------------------
14.5% Junior Subordinated Exchange
Debentures due 2008 ........................ $ 26,881,622 N/A N/A N/A
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</TABLE>
(1) Plus accretion from December 31, 1998.
(2) Calculated pursuant to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
<PAGE>
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
SUBJECT TO COMPLETION -- JANUARY 27, 1999
================================================================================
PROSPECTUS
JANUARY , 1999
[GRAPHIC OMITTED]
BRAND SCAFFOLD SERVICES, INC.
209,000 SHARES OF 14.5% SENIOR EXCHANGEABLE PREFERRED STOCK DUE 2008,
$0.01 PAR VALUE PER SHARE
$26,881,622 PRINCIPAL AMOUNT OF 14.5% JUNIOR SUBORDINATED
EXCHANGE DEBENTURES DUE 2008
- --------------------------------------------------------------------------------
The holders of our preferred stock named herein may use this prospectus in
connection with offers and sales of the preferred stock and the exchange
debentures issuable upon exchange of the preferred stock. Such sales may be
made from time to time directly to purchasers or through agents, underwriters
or dealers. If required, the names of any agents or underwriters involved in
any sale in respect of which this prospectus is being delivered, along with any
applicable agent's commission, dealer's purchase price or underwriter's
discount, will be set forth in any accompanying supplement to this prospectus.
Furthermore, information concerning selling holders set forth herein may change
from time to time, and the changes will be set forth in such a prospectus
supplement. The selling holders will receive all of the net proceeds from such
sales and will pay any and all underwriting discounts and selling commissions
applicable to such sales.
- --------------------------------------------------------------------------------
THE COMPANY:
- We are the largest North American provider of industrial scaffolding
rental, erection, dismantlement and design services.
- Our executive offices are located at:
Brand Scaffold Services, Inc.
15450 South Outer Highway 40, #270
Chesterfield, MO 63017
(314) 519-1000
MARKET FOR TRADING:
- There is currently no established market for trading of the preferred
stock.
TERMS OF PREFERRED STOCK:
- REDEMPTION
We may redeem some or all of the preferred stock at any time after
September 30, 2001.
Before September 30, 1999, we may redeem all, but not less than all, of
the preferred stock with the proceeds of certain types of offerings of
equity in our company that we make.
- MANDATORY OFFER TO REPURCHASE
If we sell certain assets or experience specific kinds of changes in
control, we must offer to purchase the preferred stock.
We must repurchase all of the preferred stock on March 31, 2008.
- RANKING
The preferred stock ranks senior, with respect to dividend rights,
rights on liquidation, rights on dissolution and rights on winding up,
to:
o our common stock;
o all of our capital stock that expressly provides that it ranks junior
to the preferred stock; and
o all of our capital stock that does not specify any rank in relation
to the preferred stock.
- DIVIDENDS
Fixed annual rate of 14.5% of the liquidation value of the preferred
stock.
Paid when, as and if declared by the board of directors.
- EXCHANGE FEATURE
Subject to certain conditons, we may issue 14.5% Junior Subordinated
Exchange Debentures due 2008, which will have the terms described
elsewhere in this prospectus, in exchange for some or all outstanding
shares of preferred stock.
-----------------------------------------------------------------------
This investment involves risks. See "Risk Factors" beginning on page 10.
- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined if this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS SUMMARY
Because this is a summary, it does not contain all the information that
may be important to you. You should read the entire prospectus, including the
financial statements and related notes, before making an investment decision.
Unless we indicate otherwise, the words "Company," "Brand," "we," "our," "ours"
and "us" mean Brand Scaffold Services, Inc. together with its subsidiaries.
Unless we indicate otherwise, references to industry size and statistics
contained in this prospectus are derived from information provided by Cook,
Holmlund & Co., Inc.
OVERVIEW
We are the largest North American provider of industrial scaffolding
services. Our services facilitate access to tall structures for on-going
maintenance, turnarounds (major maintenance projects which require the complete
or partial shutdown of a facility) and capital projects, principally in the
refining, petrochemical, chemical, utility and pulp and paper industries. We
estimate that for 1997 we had a 25% market share of the $575 million North
American industrial scaffolding services market and had industrial scaffolding
revenues in excess of three times that of our largest competitor. Our turnkey
services include equipment rental, labor for the erection and dismantlement of
scaffolding and scaffolding design services. We deliver our services through an
extensive field service organization of approximately 2,700 employees in 31
field offices located throughout the United States and two in Canada. We also
provide scaffolding services to the commercial market (primarily nonresidential
construction) and sell a small amount of scaffolding. For the twelve months
ended September 30, 1998, we generated revenues of $190.3 million. For the
twelve months ended September 30, 1998, we generated a net loss of $6.9
million.
Approximately 84% of our 1997 revenues were attributable to on-going
maintenance and turnarounds of industrial facilities. We typically provide
on-going maintenance services under long-term contracts; the duration of these
contracts ranges between one and five years. Turnarounds occur every one to
four years depending on the industry and the type of turnaround being
performed. Although some turnarounds may be postponed for a period of time,
they are a necessary component of maintaining industrial facilities and are
required to ensure the safe and efficient operation of such facilities. We
believe that the necessity for on-going maintenance and turnarounds provides us
with a stable, recurring revenue base.
Our main customers include major integrated oil companies, independent
refiners, large chemical companies, utilities and large engineering and
construction firms. Our ten largest customers in 1997, when measured by revenue
to the Company, were Exxon Corporation, Arco, Mobil Corporation, Texaco Inc.,
Phillips, Citgo Petroleum Corporation, Lyondell Petrochemical Company, Dupont,
Houston Lighting & Power Company and Shell Oil. These customers contributed 36%
of total sales in the aggregate during 1997.
We believe our position as the largest supplier of industrial scaffolding
services provides us with a number of competitive advantages including:
o the ability to offer national coverage to large customers;
o the ability to provide required personnel and scaffolding to process
major turnarounds and unanticipated plant outages;
o higher asset use through the shifting of assets across regions and
across our large customer base;
o purchasing leverage with scaffolding manufacturers; and
o comprehensive safety training programs which have resulted in an
accident incident rate which is well below the industry average and have
enabled us to reduce insurance costs and accident-related expenses.
2
<PAGE>
Our size also enables us to maintain our own trucking fleet and to provide
a design department that specializes in the custom design of industrial
scaffolding, which we use to minimize the amount of scaffolding used and to
maximize labor efficiency, thereby providing us with a competitive advantage.
THE INDUSTRY
The $1.3 billion scaffolding services industry consists of the industrial
market and the commercial market, each of which requires different types of
scaffolding equipment and levels of expertise. Industrial applications
generally require systems scaffolding, which is highly versatile, can be
quickly erected and dismantled, is capable of conforming to irregularly shaped
structures and requires a higher level of skill to erect and dismantle.
Commercial applications generally require frame and brace scaffolding which is
not as versatile as systems scaffolding and requires a lower level of
expertise.
Industrial Market. The North American industrial scaffolding market is
approximately $575 million and is serviced predominantly by scaffolding
specialists such as Brand. Although we estimate that 30 scaffolding specialists
have revenues in excess of $1 million annually, the top six scaffolding
specialists service almost one half of the total industrial market. Principal
end-use industries and their estimated percent of the total industrial market
for 1996 were:
o refineries--31%;
o petrochemical and chemical plants--30%;
o utilities--17%;
o pulp and paper mills--11%; and
o other industrial users including aerospace, ship building and other
industrial applications--11%.
Industrial customers use scaffolding for on-going maintenance, turnarounds
and capital projects. Among industrial applications, maintenance represents
approximately 50% and turnarounds represent approximately 35% of the market.
Since turnarounds may require the complete shutdown of a facility (which may
lose up to $1 million of revenues per day during a turnaround), speed and
reliability are key customer considerations. Safety is another important
consideration for industrial customers as scaffolding contractor accident
incidents are counted against a facility's safety record and may cause
increases in both insurance premiums and attention by the Occupational Safety
and Health Administration ("OSHA").
Commercial Market. The North American commercial scaffolding market is
approximately $725 million. Commercial scaffolding is used primarily in
nonresidential construction and renovation projects. Commercial applications
are generally characterized by regularly shaped structures with few contoured
or angled surfaces. Due to the simple shapes required, commercial jobs
generally utilize frame and brace scaffolding, a less versatile type of
equipment which is not suited to industrial applications. Commercial
scaffolding requires a less skilled work force and has historically been less
focused on safety issues. These factors combine to make the commercial market
highly fragmented with low barriers to entry.
BUSINESS STRATEGY
We have developed a business strategy which we believe will enable us to
profitably increase future revenues and cash flow. The key components of this
strategy are:
Leverage existing strengths. Our existing strengths include longstanding
customer relationships, extensive equipment resources, significant labor
capacity and an industry-leading safety record. These strengths have enabled us
to gain our current substantial market share and to expand our business. We
intend to utilize these strengths to retain our maintenance contracts and to
aggressively pursue turnarounds and capital projects with our existing
customers and to expand scaffolding services to such customers' other
facilities.
3
<PAGE>
Target underpenetrated industrial segments. Due to our leading market
position and extensive service infrastructure, we have the capacity to service
several industries in which, due to limited historical focus, we have had a
relatively low market share. These include the chemical, utilities and pulp and
paper industries. To increase our penetration in these markets, we have
expanded our sales force, initiated incentive and training programs and created
a sales management function to target opportunities and monitor the
effectiveness of the sales force.
Reduce operating costs. In November 1997, we implemented a cost reduction
program which is expected to reduce our annual operating overhead and selling,
general and administrative expenses by approximately $5.3 million. The major
initiatives include:
o eliminating 63 administrative and support positions and consolidating
certain administrative functions;
o restructuring and renegotiating benefits programs;
o renegotiating our insurance premiums to reflect continued improvements
in our safety record;
o negotiating company-wide procurement contracts in order to take
advantage of volume pricing; and
o implementing a new management information system to improve inventory
utilization and reduce equipment transportation expenses.
Pursue complementary acquisitions. We intend to pursue complementary
acquisitions where significant consolidation savings and economies of scale can
be achieved. The scaffolding industry is characterized by single-office or
regional companies, many of which are undercapitalized and have limited
scaffolding inventories. We intend to focus our acquisition strategy on
companies which have long-term contracts or an expertise in a certain industry
or scaffolding application.
Expand our commercial scaffolding operations. We intend to use our
existing infrastructure to expand our position in the commercial market. To
increase our penetration of the commercial market, we have targeted large-scale
new construction and renovation projects, which require relatively complex
scaffolding. Further, we have opened new offices in four cities and expanded
our sales force and our inventory of frame and brace scaffolding. We believe
our industry-leading safety record provides us with a competitive advantage in
pursuing these commercial scaffolding market opportunities in the future. In
November 1996, OSHA enacted stricter regulations regarding training and safety
in the commercial scaffolding industry. As a result, safety has become a key
consideration for commercial customers.
COMPANY HISTORY AND STRUCTURE
On September 30, 1996, DLJ Merchant Banking Partners, L.P. and certain of
its affiliates ("DLJMB") and Carlisle-Brand Investors, L.P. ("Carlisle")
acquired indirectly, through a series of mergers, an 80.1% equity interest in
the Company from WMI Technologies, Inc. ("WMI"). As a result of the
acquisition, we became a wholly owned subsidiary of DLJ Brand Holdings, Inc.
("Holdings"), in which DLJMB, Carlisle and Rust Industrial Services Inc. ("Rust
Industrial"), a majority owned subsidiary of WMI, hold equity interests. In
connection with the acquisition, DLJ Capital Funding, Inc. ("DLJ Capital") and
Bank of America National Trust and Savings Association ("BofA") provided us
$190.0 million of financing (the "Bank Facility"), comprised of three senior
secured term loans and a revolving loan facility.
We are a Delaware corporation. Our executive offices are located at 15450
South Outer Highway 40, #270, Chesterfield, Missouri 63017, and our telephone
number is (314) 519-1000.
4
<PAGE>
THE PREFERRED STOCK
DIVIDENDS................... Annual rate -- 14.5% of liquidation value
(originally $25.00)
Payment frequency -- when, as and if declared by
our Board of Directors
First payment -- Dividends accrete to the
liquidation value of the preferred stock until
the later to occur of September 30, 2001 and the
date when we are permitted to pay cash dividends
on the preferred stock under the terms of our
debt outstanding at that time.
LIQUIDATION PREFERENCE...... Liquidation value plus accrued and unpaid
dividends. At December 31, 1998, the liquidation
value was $34.44 per share.
VOTING...................... Holders of the preferred stock can only vote if
and whenever:
o we do not pay six consecutive quarterly
dividends after September 30, 2001;
o we do not redeem the preferred stock on
March 31, 2008;
o we do not offer to redeem the preferred
stock in a timely manner following specific
kinds of changes in control;
o we pay dividends on other securities while
we have not paid full cumulative dividends on
the preferred stock;
o we redeem or repurchase securities junior to
the preferred stock while we have not paid
full cumulative dividends on the preferred
stock; or
o our certificate of incorporation is amended
without the consent of the holders of the
preferred stock, and the amendment is adverse
to the holders.
Holders of the preferred stock are entitled as a
class to elect two directors if any of the above
events occur. Holders of the preferred stock
have no other voting rights.
MANDATORY REDEMPTION........ We are required to make an offer to redeem all
of the preferred stock:
o at 101% of the liquidation value if we sell
certain assets or experience specific kinds
of changes of control; and
o on March 31, 2008 at the liquidation value
on that date.
Our ability to repurchase the preferred stock
may be limited by our contractual obligations
existing at the time proposed for repurchase. We
may not have sufficient money to repurchase the
preferred stock.
OPTIONAL REDEMPTION......... On or after September 30, 2001, we may redeem
some or all of the preferred stock at the
redemption prices listed in the section
"Description of Preferred Stock" under the
heading "Optional Redemption."
5
<PAGE>
Before September 30, 1999, if the net proceeds
of certain offerings of equity in our Company
are great enough to redeem all, but not less
than all, of the preferred stock at a price of
114.5% of the liquidation value of the preferred
stock, then the Company may redeem all, but not
less than all of the preferred stock with such
proceeds.
RANKING..................... The preferred stock ranks senior, with respect
to dividend rights, rights on liquidation, rights
on dissolution and rights on winding up, to:
o our common stock;
o all of our capital stock that expressly
provides that it ranks junior to the preferred
stock; and
o all of our capital stock that does not
specify any rank in relation to the preferred
stock.
EXCHANGE FEATURE............ Subject to certain conditions, we may issue
14.5% Junior Subordinated Exchange Debentures due
2008 in exchange for some or all outstanding
shares of preferred stock, at an exchange ratio
of $1.00 of liquidation value of preferred stock
for $1.00 principal amount of exchange
debentures.
USE OF PROCEEDS............. We will not receive any proceeds from sales of
the preferred stock pursuant to this prospectus.
THE EXCHANGE DEBENTURES
MATURITY DATE............... March 31, 2008
INTEREST RATE............... Annual rate -- 14.5%
Payment frequency -- quarterly
Form of payment -- We will pay interest in the
form of exchange debentures until the later to
occur of September 30, 2001 and the date when we
are permitted to pay interest in cash on the
exchange debentures under the terms of our debt
outstanding at that time. Then, we will pay
interest in cash.
OPTIONAL REDEMPTION......... On or after September 30, 2001, we may redeem
some or all of the exchange debentures at the
redemption prices listed in the section
"Description of Exchange Debentures" under the
heading "Optional Redemption."
Before September 30, 1999, we may redeem some or
all of the exchange debentures at a price of
114.5% of the principal amount of the exchange
debentures plus accrued and unpaid cash
interest, if any, to the date of redemption,
with the proceeds of certain offerings of equity
in our Company. We must make this repurchase on
a proportional basis from all holders of
exchange debentures.
6
<PAGE>
CHANGE OF CONTROL........... Each holder of exchange debentures may require
us to repurchase its exchange debentures at 101%
of the principal amount of the exchange
debentures plus accrued and unpaid interest, if
any, if we sell certain assets or experience
specific kinds of changes of control. Our ability
to repurchase the exchange debentures may be
limited by our contractual obligations existing
at the time proposed for repurchase. We may not
have sufficient money to repurchase the exchange
debentures.
RANKING..................... The exchange debentures will be general
unsecured debt.
They rank behind all of our current and future
indebtedness, except indebtedness that expressly
provides that it ranks equal to or junior to the
exchange debentures.
Assuming these exchange debentures were
outstanding on September 30, 1998, the exchange
debentures would have been subordinated to
$159.0 million of senior debt. Approximately
$29.0 million of that senior debt was secured.
On September 30, 1998, we had the ability to
borrow up to $13.1 million in indebtedness that
would have been senior to the exchange
debentures had they then been outstanding.
CERTAIN COVENANTS........... If the exchange debentures are issued, we will
issue them pursuant to an indenture which will
contain certain customary covenants. Some of
these covenants relate to:
o our payment of principal, premium and
interest on the exchange debentures;
o our maintenance of an office for payments;
o the appointment of a paying agent;
o the maintenance of lists of holders of
exchange debentures;
o the filing of reports;
o the limitation on our ability to make
certain payments; and
o the limitation on our ability to merge,
consolidate or sell certain of our assets.
7
<PAGE>
SUMMARY FINANCIAL DATA
The following table presents:
(i) summary historical financial data of Rust Scaffold Services, Inc.
("Rust"), prior to the acquisition by DLJMB and Carlisle of a majority
of the Company's common stock (the "Acquisition"), for the year ended
December 31, 1995 and for the nine months ended September 30, 1996; and
(ii) summary historical financial data of Brand, after the Acquisition for the
three months ended December 31, 1996, the year ended December 31, 1997,
the nine months ended September 30, 1998 and as of December 31, 1996,
December 31, 1997 and September 30, 1998.
The summary historical financial data as of and for the year ended
December 31, 1995 and for the nine months ended September 30, 1996 has been
derived from the audited financial statements of Rust. The summary historical
financial data as of and for the three months ended December 31, 1996 and the
year ended December 31, 1997 has been derived from the audited financial
statements of Brand. The summary historical financial data as of and for the
nine months ended September 30, 1998 has been derived from the unaudited
financial statements of Brand. You should read the financial data set forth
below together with the "Management's Discussion and Analysis of Financial
Condition and Results of Operation" section and our financial statements and
related notes included in this prospectus.
<TABLE>
<CAPTION>
RUST BRAND
-------------------------------- ------------------------------------------------
YEAR NINE MONTHS THREE MONTHS YEAR NINE MONTHS
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1996 1997 1998
-------------- --------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA: (1)
Revenue ........................ $193,829 $124,769 $44,412 $160,660 $147,782
Operating Expenses ............. 138,968 89,073 34,170 122,638 113,038
-------- -------- ------- -------- --------
Gross Profit .................. 54,861 35,696 10,242 38,022 34,744
Selling and Administrative
Expenses ...................... 25,807 15,825 4,743 25,840 19,868
Nonrecurring Start-up
Expenses ...................... -- -- -- 2,498 --
-------- -------- ------- -------- --------
Operating Income ............... 29,054 19,871 5,499 9,684 14,876
Interest Expense ............... 9,444 7,872 4,504 15,422 12,712
Interest Income ................ (1,012) (482) (195) (397) (171)
Other Expense, Net (2) ......... 853 708 -- -- --
-------- -------- ------- -------- --------
Pretax Income (Loss) .......... 19,769 11,773 1,190 (5,341) 2,335
Provision for
Income Tax .................... 8,300 4,813 525 -- --
Extraordinary Loss, Net of
Tax ........................... -- -- -- -- 4,329
-------- -------- ------- -------- --------
Net Income (Loss) .............. $ 11,469 $ 6,960 $ 665 $ (5,341) $ (1,994)
======== ======== ======= ======== ========
OTHER DATA: (1)
EBITDA (3) ..................... $ 36,803 $ 25,832 $ 8,398 $ 22,009 $ 24,864
Cash flow from operations 35,587 28,478 4,966 11,983 15,736
Depreciation and
Amortization .................. 8,602 6,669 3,567 13,294 10,541
Cash Interest Expense (4) ...... 9,444 7,872 3,836 14,453 12,159
-------- -------- ------- -------- --------
Capital Expenditures
Maintenance ................... $ 2,755 $ 512 $ 97 $ 3,024 $ 4,936
Expansion ..................... 5,847 1,298 111 6,733 6,188
-------- -------- ------- -------- --------
Total ........................ $ 8,602 $ 1,810 $ 208 $ 9,757 $ 11,124
Ratio of earnings to
combined fixed charges
and preferred stock
dividends (5) ................. 3.0x 2.4x .5x .9x
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
BRAND
--------------------------------------------
AT DECEMBER 31,
------------------------ AT SEPTEMBER 30,
1996 1997 1998
---------- ----------- -----------------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA: (1)
<S> <C> <C> <C>
Working Capital .................................... $ 12,656 $ 4,207 $ 13,195
Total Assets ....................................... 204,266 197,543 206,681
Long-Term Debt (including current portion) ......... 158,000 154,250 159,000
14.5% Senior Exchangeable Preferred Stock .......... 25,906 31,140 34,651
Stockholder's Equity (Deficit) ..................... 4,247 (5,176) (11,260)
</TABLE>
- ----------
(1) The Acquisition had a significant impact on our financial position and
results of operations. Consequently, the financial data for and as of
dates prior to the Acquisition may not be directly comparable to
corresponding information for and as of dates after the Acquisition.
(2) Since the Acquisition, we have not separately classified other income and
expense and have included it in selling and administrative expenses
because such amounts have been immaterial.
(3) EBITDA is defined as earnings before interest income, cash interest
expense, income taxes, depreciation and amortization. EBITDA is commonly
used to analyze companies on the basis of operating performance, leverage
and liquidity. EBITDA is not intended to represent cash flows for the
period, nor has it been presented as an alternative to operating income
as an indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
(4) Cash interest expense represents total interest expense less amortization
of deferred financing fees of $668,000 for the three months ended
December 31, 1996, $969,000 for the year ended December 31, 1997 and
$553,000 for the nine months ended September 30, 1998.
(5) For the purposes of calculating the ratio of earnings to combined fixed
charges and preferred stock dividends, earnings represent income (loss)
before income taxes plus fixed charges. Fixed charges consist of interest
expense on all indebtedness plus the interest portion of rental expense
on noncancelable leases, amortization of debt issuance costs, and
preferred stock dividends.
9
<PAGE>
RISK FACTORS
In addition to the other matters described in this prospectus, you should
carefully consider the risks described below before making an investment
decision.
This prospectus includes forward-looking statements that involve a number
of risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including the risks faced by us described below and elsewhere in this
prospectus. Given these uncertainties, you are cautioned not to place undue
reliance on such forward-looking statements. We disclaim any obligation to
update any factors or to publicly announce the results of any revisions to any
of the forward-looking statements contained in this prospectus to reflect
future events or developments.
SUBSTANTIAL LEVERAGE -- OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT THE
FINANCIAL HEALTH OF THE COMPANY AND PREVENT US FROM FULFILLING OUR OBLIGATION
TO SERVICE OUR CURRENT INDEBTEDNESS.
We are highly leveraged. As of September 30, 1998, our total long-term
debt was $159.0 million, which constitutes the Company's total amount of senior
debt outstanding. Our estimated annual payment obligation for 1998 with respect
to our indebtedness is comprised of approximately $1.5 million of principal
payments and $11.4 million of interest payments. Our payment obligation for
1997 consisted of $8.3 million of principal payments and $14.1 million of
interest payments.
Our substantial indebtedness could have important consequences to you. For
example, it could:
o limit our ability to fund future working capital, capital
expenditures, acquisitions and other general corporate activities;
o require us to dedicate a substantial portion of our operating cash
flow to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund other areas of our business; and
o limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate.
Our borrowings under the Bank Facility are at floating rates of interest,
which could result in higher interest expense in the event of an increase in
interest rates. Further, our management's business decisions will be limited by
covenants contained in the bank facility and the indenture under which the
Company's 10 1/4% Senior Notes due 2008 were issued.
ABILITY TO SERVICE DEBT -- TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY
FACTORS BEYOND OUR CONTROL.
Our ability to pay interest on the 10 1/4% Senior Notes and to satisfy our
other debt obligations will depend upon our future operating performance and
our ability to obtain additional debt or equity financing. Prevailing economic
conditions and financial, business and other factors, many of which are beyond
our control, will affect our ability to make these payments. In addition, our
access to payments and advances from our subsidiaries in amounts and at times
sufficient to fund our debt obligations will affect our ability to make these
payments. If in the future we cannot generate sufficient cash from operations
to make scheduled payments on the notes or to meet our other obligations, we
will need to refinance, obtain additional financing or sell assets. We cannot
assure you that our business will generate cash flow, or that we will be able
to obtain funding, sufficient to satisfy our debt service requirements.
10
<PAGE>
RESTRICTIVE COVENANTS -- OUR DEBT AGREEMENTS CONTAIN PROVISIONS WHICH RESTRICT
OUR OPERATIONS AND OUR ABILITY TO PAY CASH DIVIDENDS ON OR REDEEM THE PREFERRED
STOCK. THESE PROVISIONS WOULD ALSO RESTRICT OUR ABILITY TO PAY INTEREST ON OR
REDEEM THE EXCHANGE DEBENTURES IF THEY WERE ISSUED IN EXCHANGE FOR THE
PREFERRED STOCK.
Among other things, the operating and financial restrictions and covenants
contained in our debt agreements restrict, condition or prohibit us from:
o incurring additional indebtedness;
o creating liens on our assets;
o making certain asset dispositions;
o entering into transactions with affiliates;
o merging or consolidating with any other person; or
o selling, assigning, transferring, leasing, conveying or otherwise
selling certain of our assets.
In addition, the Bank Facility contains financial and operating covenants
and prohibitions, including requirements that we maintain certain financial
ratios and use a portion of excess cash flow and proceeds of assets sales to
repay indebtedness under the Bank Facility.
The operating and financial restrictions and covenants in our existing
debt agreements and any future financing agreements may adversely affect our
ability to finance future operations or capital needs or to engage in other
business activities. A breach of any of these restrictions or covenants could
cause a default under other debt. A significant portion of our indebtedness
then may become immediately due and payable. We are not certain whether we
would have, or be able to obtain, sufficient funds to make these accelerated
payments.
Both the Bank Facility and our 10 1/4% Senior Notes due 2008 restrict our
ability to pay cash dividends on or to redeem the preferred stock. Both the
Bank Facility and our 10 1/4% Senior Notes would also restrict our ability to
pay interest on or redeem the exchange debentures if they were issued in
exchange for the preferred stock.
As of December 31, 1997, we were not in compliance with certain covenants
in the Bank Facility. We obtained waivers for these covenant violations from
the lenders under the Bank Facility. We also obtained an amendment to the Bank
Facility which became effective upon the consummation of the 101/4% Senior
Notes offering and, among other things, reset the financial ratios and
financial tests required to be met under the Bank Facility to levels that are
more consistent with our capital structure following the notes offering and our
current and expected financial performance. As of September 30, 1998, we were
in compliance with the reset financial ratios and financial tests. On November
20, 1998, we sought and obtained the consent of the lenders under the Bank
Facility to treat certain capital expenditures incurred in connection with two
particular acquisitions as investments rather than as capital expenditures.
Although we have not been required to seek additional waivers or consents from
the lenders under the Bank Facility, we may be required to seek waivers or
consents in the future. We cannot assure that these waivers or consents will be
granted. See "Description of Bank Facility."
SUBORDINATION -- YOUR RIGHT TO RECEIVE PAYMENTS RELATED TO THE PREFERRED STOCK
AND, IF ISSUED, THE EXCHANGE DEBENTURES IS JUNIOR TO OUR EXISTING CURRENT AND
FUTURE SENIOR INDEBTEDNESS.
The preferred stock and, if issued, the exchange debentures will be
effectively subordinated to all current and future senior indebtedness,
including indebtedness under the Bank Facility and the 10 1/4% Senior Notes, to
the extent of any pledged assets. Our obligations under the Bank Facility are
secured by a pledge of substantially all of our and our subsidiaries' assets.
In the event of a bankruptcy, liquidation or reorganization of the Company, our
assets would be available to pay obligations on the preferred stock or, if
issued, the exchange debentures only after all indebtedness under the Bank
Facility and all other senior indebtedness has been paid in full. There may not
be sufficient assets remaining to make any payments on the preferred stock, or,
if issued, the exchange debentures. Our U.S. subsidiaries have issued
guarantees under the Bank Facility. As of September 30, 1998, we had $159.0
million of senior indebtedness outstanding. In addition, as of September 30,
1998, we had $13.1 million in unused senior secured borrowing capacity under
the Bank Facility.
11
<PAGE>
DEPENDENCE ON SUBSIDIARIES -- THE PREFERRED STOCK AND, IF ISSUED, THE EXCHANGE
DEBENTURES WILL EFFECTIVELY RANK JUNIOR TO OUR SUBSIDIARIES' LIABILITIES.
Our subsidiaries conduct substantially all of our operations. Therefore,
our ability to make required payments with respect to our obligations,
including the preferred stock and, if issued, the exchange debentures, depends
on the earnings of our subsidiaries and on our ability to receive funds from
our subsidiaries through dividends or other payments. Our subsidiaries are not
obligated or required to make any payments on the preferred stock or, if
issued, the exchange debentures, or to make funds available to us for payment
on the preferred stock, the exchange debentures or otherwise. Furthermore, the
preferred stock and, if issued, the exchange debentures will effectively rank
junior to all outstanding indebtedness and other liabilities and commitments
(including trade payables and operating lease obligations) of our subsidiaries.
Our right to receive assets of any of our subsidiaries upon their liquidation
or reorganization (and the consequent right of holders of preferred stock or
exchange debentures to participate in those assets) will be effectively
subordinated to the claims of that subsidiary's creditors, except to the extent
that we are recognized as a creditor of the subsidiary. If we are recognized as
a creditor of the subsidiary, our claims will still be subordinate to any
security interest in the subsidiary's assets and any of the subsidiary's
indebtedness senior to that which we hold. As of September 30, 1998, our
subsidiaries had no indebtedness outstanding other than intercompany
indebtedness and certain capital lease obligations.
EFFECTS OF SEASONALITY AND CYCLICALITY -- THERE ARE SEASONAL FLUCTUATIONS IN
DEMAND FOR OUR SERVICES. FURTHER, WE HAVE EXPERIENCED A DEGREE OF CYCLICALITY
IN THE MARKET WE SERVICE.
The market for industrial scaffolding services experiences seasonal
fluctuations in demand. In particular, because of high demand for gasoline for
automobiles during the summer, most refineries prefer to close down for
turnarounds during the spring and fall. Similar patterns are evidenced for
utilities.
We may be able to take advantage of differing seasonal patterns in other
markets we service, such as the commercial scaffolding market, but seasonality
may still lead to:
o low inventory use during periods of low demand;
o an inability to service all of our customers during periods of high
demand;
o price fluctuations; and
o periods of low cash flow.
Historically, the market for industrial scaffolding services has
experienced a degree of cyclicality. In particular, demand for nonresidential
construction and capital projects is highly cyclical. In addition, when
refining products are in high demand or the price of pulp is high, refineries
and pulp and paper mills often delay turnarounds. It does not appear that any
areas of our business exhibit a significant degree of counter-cyclicality that
would offset these effects. This cyclicality could have a material adverse
effect on the Company.
CONCENTRATION OF CUSTOMERS -- LOSING CERTAIN CUSTOMERS COULD MATERIALLY AFFECT
OUR REVENUES.
Our top ten customers accounted for approximately 36% of total revenues
during 1997. The largest customer, Exxon Corporation, accounted for
approximately 17% of our revenues. The loss of any of these customers could
have a material adverse effect on the Company. It is unclear what effect the
recently announced mergers and consolidations in the oil industry (such as the
merger between Exxon Corporation and Mobil Corporation and between British
Petroleum P.L.C. and Amoco Corporation) and the paper industry will have on the
Company.
COMPETITION -- WE CANNOT ASSURE THAT WE WILL BE ABLE TO MAINTAIN OUR CURRENT
MARKET SHARE.
We currently face competition from other existing scaffolding services
providers, including entities providing substantially similar services, some of
which have significantly greater resources than the
12
<PAGE>
Company. We also compete with larger engineering and construction firms. While
we believe that we currently have a strong position in the industrial
scaffolding market, we cannot assure that we will be able to increase or
maintain our market share.
DEPENDENCE ON LABOR -- DECREASES IN THE LABOR FORCE OR INCREASES IN THE COST OF
LABOR COULD MATERIALLY AFFECT THE COMPANY.
Our business has a high labor content and, as a result, our financial
performance is affected by the availability of qualified personnel and the cost
of labor. In recent years, unemployment rates have reached unusually low levels
leading to lower availability of labor and to wage inflation. In particular,
the supply of labor has been low relative to demand in the Gulf Coast Region,
in which we have significant operations. While we have been successful in
hiring workers for our projects and we do not believe that the reduced
availability of labor has had a material adverse effect on our financial
performance, we cannot assure that sufficient labor will be available in the
future or that the cost of labor will not rise, either of which could have an
adverse effect on the Company.
Approximately 30% of our employees are represented by labor unions. We
cannot assure that strikes or other types of conflicts with unions or personnel
will not arise or that we will not become a target for further union organizing
activity. Since our business has a high labor content, any such activity could
have a material adverse effect on the Company.
DEPENDENCE ON CERTAIN INDUSTRIES -- OUR PERFORMANCE DEPENDS UPON THE STABILITY
OF A SMALL GROUP OF INDUSTRIES.
Our financial performance is dependent upon the continued viability and
financial stability of our customers, which are in turn substantially dependent
on the viability and financial stability of the oil, petrochemical, chemical,
utilities, pulp and paper and construction industries. In addition, many of our
customers are affected by general economic conditions. The factors affecting
these industries in general, and our customers in particular, could have a
material adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL -- LOSING CERTAIN EMPLOYEES COULD MATERIALLY AFFECT
THE COMPANY.
Our continued success depends to a large extent upon the continued
services of our senior management and certain individuals with critical client
relationships. The loss of the services of any of these employees could have a
material adverse effect on the Company. We do not maintain "key man" insurance
with respect to any individuals.
ACQUISITION STRATEGY -- THERE ARE VARIOUS RISKS ASSOCIATED WITH OUR PLAN TO
ACQUIRE OTHER SCAFFOLDING PROVIDERS.
We intend to expand our business by acquiring other scaffolding providers.
We cannot assure that:
o suitable acquisition candidates will be available;
o acquisitions can be completed on reasonable terms;
o we will successfully integrate the operations of any acquired entity;
or
o we will have the ability to raise the funds necessary to make
acquisitions.
Some of the risks associated with this acquisition strategy include
problems inherent in integrating new businesses such as a potential loss of
customers and key personnel and a potential disruption in operations. In
addition, acquisitions may be limited by restrictions contained in our debt
agreements.
POSSIBLE INABILITY TO REPURCHASE PREFERRED STOCK OR EXCHANGE DEBENTURES UPON A
CHANGE OF CONTROL -- WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY
TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE PREFERRED STOCK AND THE
EXCHANGE DEBENTURES. FURTHER, OUR ABILITY TO REPURCHASE THE PREFERRED STOCK OR
THE EXCHANGE DEBENTURES MAY BE LIMITED BY OUR EXISTING CONTRACTUAL OBLIGATIONS.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all of the shares of preferred stock
or, if issued, exchange debentures at a
13
<PAGE>
redemption price equal to 101% of the liquidation value, together with accrued
and unpaid cash dividends or interest. However, our ability to make the
redemption may be limited by the terms of our and our subsidiaries' then
existing contractual obligations. Furthermore, under the Bank Facility, the
occurrence of certain specific kinds of change of control events would
constitute an event of default, possibly causing acceleration of all payments
required under the Bank Facility. We may not have sufficient funds to make the
required repurchase, and we cannot assure that we would be able to obtain such
resources.
Pursuant to the indenture governing our 10 1/4% Senior Notes, upon the
occurrence of certain specific kinds of change of control events each holder of
the notes will have the right to require us to repurchase some or all of the
notes at a price equal to 101% of the principal amount of the notes, plus
accrued and unpaid interest, if any, to the date of purchase. If we fail to
repurchase all of the notes tendered for purchase, such failure will constitute
an event of default under the indenture. In addition, no funds would be
available for redemption of the preferred stock until the repurchase of the
notes is completed.
With respect to the sale of assets referred to in the definition of
"Change of Control" as it applies to the preferred stock and the exchange
debentures, the phrase "all or substantially all" as used in such definition
varies according to the facts and circumstances of the subject transaction, has
no clearly established meaning under the relevant law and is subject to
judicial interpretation. Accordingly, in certain circumstances there may be a
degree of uncertainty in determining whether a particular transaction would
involve a disposition of "all or substantially all" of the assets of a person
and therefore it may be unclear whether a change of control has occurred and
whether the preferred stock is subject to repurchase or the exchange debentures
are subject to redemption.
The change of control provision may not protect you in the event of
certain important corporate events, including a reorganization, restructuring,
merger or other similar event involving the Company that may adversely affect
the holders of the preferred stock or the exchange debentures.
LACK OF PUBLIC MARKET FOR THE PREFERRED STOCK OR THE EXCHANGE DEBENTURES-- YOU
CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE PREFERRED
STOCK OR, IF ISSUED, THE EXCHANGE DEBENTURES.
There is currently no established trading market for the preferred stock
or the exchange debentures. We cannot assure the liquidity of any markets that
may develop for the preferred stock or, if issued, the exchange debentures, or
the ability of or price at which the holders of preferred stock or exchange
debentures will be able to sell their securities. Future trading prices of the
preferred stock and the exchange debentures will depend on many factors,
including, among others, our operating results and the market for similar
securities. We do not intend to apply for listing of the preferred stock or, if
issued, the exchange debentures on any securities exchange. We cannot assure
that an active public or other market will develop for the preferred stock or,
if issued, the exchange debentures.
14
<PAGE>
USE OF PROCEEDS
The Selling Holders (as defined in the section "Selling Holders" of this
prospectus) will receive all of the net proceeds from any sale of the preferred
stock or, if issued, the exchange debentures, pursuant to this prospectus. We
will not receive any proceeds from the sale of the preferred stock or, if
issued, the exchange debentures, pursuant to this prospectus. We received $26.1
million in net proceeds from the original issuance and sale of the 1,042,460
shares of preferred stock currently outstanding including the shares of
preferred stock described in this prospectus. Approximately
$25.0 million of such net proceeds was used as a portion of the financing for
the Acquisition and approximately $1.1 million of the net proceeds was used for
working capital and other general corporate purposes.
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization
of the Company as of September 30, 1998. This table should be read in
conjunction with the consolidated financial statements, including the notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
-------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Long-term Debt (including current portion):
Bank Facility
Term Loan Facilities ....................................... 29,000
Revolving Loan Facility(1) ................................. --
10 1/4% Senior Notes due 2008 .............................. 130,000
-------
Total Long-term Debt ....................................... 159,000
14.5% Senior Exchangeable Preferred;
1,250,000 shares authorized; 1,042,460 shares issued ......... 34,651
Stockholder's Deficit ......................................... (11,260)
-------
Total Capitalization ....................................... 182,391
=======
</TABLE>
- ----------
(1) The Company has $7.1 million of letters of credit outstanding to cover
insurance commitments for the policy year October 1, 1997 to September
30, 1998 and $0.4 million which allows the beneficiary, Lyondell-Citgo
Refining Company Ltd., to pay all amounts due the Company in full without
withholding a retention amount.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents (i) selected historical financial data of
Rust as of and for each of the years ended December 31, 1993, 1994 and 1995 and
for the nine months ended September 30, 1996 and (ii) selected historical
financial data of Brand, for the three months ended December 31, 1996, the year
ended December 31, 1997 and the nine months ended September 30, 1997 and 1998.
The selected historical financial data as of and for the years ended December
31, 1994 and 1995 and for the nine months ended September 30, 1996 has been
derived from the audited financial statements of Rust. The selected historical
financial data as of and for the year ended December 31, 1993 has been derived
from the unaudited financial statements of Rust. The selected historical
financial data as of and for the three months ended December 31, 1996 and the
year ended December 31, 1997 has been derived from the audited financial
statements of Brand. The selected historical financial data as of and for the
nine months ended September 30, 1997 and 1998 has been derived from the
unaudited financial statements of Brand. The financial data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's financial
statements and notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
RUST
---------------------------------------------------
NINE
MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
----------- ----------- ----------- ---------------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA: (1)
<S> <C> <C> <C> <C>
Revenue ...................... $188,972 $182,372 $193,829 $124,769
Operating Expenses ........... 133,284 129,045 138,968 89,073
-------- -------- -------- --------
Gross Profit ................ 55,688 53,327 54,861 35,696
Selling and
Administrative
Expenses .................... 22,824 27,111 25,807 15,825
Nonrecurring Start-up
Expenses .................... -- -- -- --
-------- -------- -------- --------
Operating Income ............. 32,864 26,216 29,054 19,871
Interest Expense ............. 8,534 9,655 9,444 7,872
Interest Income .............. (301) (707) (1,012) (482)
Other Expense, Net (2) ....... -- 813 853 708
-------- -------- -------- --------
Pretax Income (Loss)......... 24,631 16,455 19,769 11,773
Provision for Income
Tax ......................... 9,761 7,200 8,300 4,813
Extraordinary Loss,
Net of Tax .................. -- -- -- --
-------- -------- -------- --------
Net Income (Loss) ........... $ 14,870 $ 9,255 $ 11,469 $ 6,960
======== ======== ======== ========
OTHER DATA: (1)
EBITDA (3) ................... $ 41,751 $ 33,956 $ 36,803 $ 25,832
Cash flow from
operations .................. 17,088 22,234 35,587 28,478
Depreciation and
Amortization ................ 8,887 8,553 8,602 6,669
Cash Interest Expense (4) .... 8,534 9,655 9,444 7,872
Capital Expenditures
Maintenance ................. $ 4,494 $ 3,368 $ 2,755 $ 512
Expansion ................... 7,523 7,691 5,847 1,298
-------- -------- -------- --------
Total ....................... $ 12,017 $ 11,059 $ 8,602 $ 1,810
Ratio of earnings to
combined fixed
charges and preferred
stock dividends (5) ......... 3.8x 2.6x 3.0x 2.4x
</TABLE>
<TABLE>
<CAPTION>
BRAND
-----------------------------------------------------------
THREE NINE NINE
MONTHS YEAR MONTHS MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997 1998
-------------- ------------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue ...................... $44,412 $160,660 $118,173 $147,782
Operating Expenses ........... 34,170 122,638 88,535 113,038
------- -------- -------- --------
Gross Profit ................ 10,242 38,022 29,638 34,744
Selling and
Administrative
Expenses .................... 4,743 25,840 16,868 19,868
Nonrecurring Start-up
Expenses .................... -- 2,498 1,936 --
------- -------- -------- --------
Operating Income ............. 5,499 9,684 10,834 14,876
Interest Expense ............. 4,504 15,422 11,553 12,712
Interest Income .............. (195) (397) (324) (171)
Other Expense, Net (2) ....... -- -- -- --
------- -------- -------- --------
Pretax Income (Loss)......... 1,190 (5,341) (395) 2,335
Provision for Income
Tax ......................... 525 -- -- --
Extraordinary Loss,
Net of Tax .................. -- -- -- 4,329
------- -------- -------- --------
Net Income (Loss) ........... $ 665 $ (5,341) $ (395) $ (1,994)
======= ======== ======== ========
OTHER DATA: (1)
EBITDA (3) ................... $ 8,398 $ 22,009 $ 19,711 $ 24,864
Cash flow from
operations .................. 4,966 11,983 11,934 15,736
Depreciation and
Amortization ................ 3,567 13,294 9,685 10,541
Cash Interest Expense (4) .... 3,836 14,453 10,745 12,159
Capital Expenditures
Maintenance ................. $ 97 $ 3,024 $ 2,324 $ 4,936
Expansion ................... 111 6,733 8,442 6,188
------- -------- -------- --------
Total ....................... $ 208 $ 9,757 $ 10,766 $ 11,124
Ratio of earnings to
combined fixed
charges and preferred
stock dividends (5) ......... .5x .7x .9x
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
RUST BRAND
----------------------------------- ----------------------
AT DECEMBER 31,
----------------------------------------------------------
1993 1994 1995 1996 1997
------------- ---------- ---------- ---------- -----------
(UNAUDITED) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (1)
Working Capital .................................... $ 28,457 $ 34,155 $ 30,227 $ 12,656 $ 4,207
Total Assets ....................................... 180,310 180,107 178,201 204,266 197,543
Long-Term Debt (including current portion) ......... -- -- -- 158,000 154,250
14.5% Senior Exchangeable Preferred Stock .......... -- -- -- 25,906 31,140
Stockholder's Equity (Deficit) ..................... 161,005 150,005 141,374 4,247 (5,176)
</TABLE>
<TABLE>
<CAPTION>
BRAND
------------------------------------
AT SEPTEMBER 30, AT SEPTEMBER 30,
1997 1998
------------------ -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA: (1)
Working Capital .................................... $ 8,361 $ 13,195
Total Assets ....................................... 198,390 206,681
Long-Term Debt (including current portion) ......... 152,000 159,000
14.5% Senior Exchangeable Preferred Stock .......... 30,051 34,651
Stockholder's Equity (Deficit) ..................... (372) (11,260)
</TABLE>
- ----------
(1) The Acquisition had a significant impact on our financial position and
results of operations. Consequently, the financial data for and as of
dates prior to the Acquisition may not be directly comparable to
corresponding information for and as of dates after the Acquisition.
(2) Since the Acquisition, we have not separately classified other income and
expense and have included it in selling and administrative expenses
because such amounts have been immaterial.
(3) EBITDA is defined as earnings before interest income, cash interest
expense, income taxes, depreciation and amortization. EBITDA is commonly
used to analyze companies on the basis of operating performance, leverage
and liquidity. EBITDA is not intended to represent cash flows for the
period, nor has it been presented as an alternative to operating income
as an indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
(4) Cash interest expense represents total interest expense less amortization
of deferred financing fees of $668,000 for the three months ended
December 31, 1996, $969,000 for the year ended December 31, 1997 and
$807,000 and $553,000 for the nine months ended September 30, 1997 and
1998, respectively.
(5) For the purposes of calculating the ratio of earnings to combined fixed
charges and preferred stock dividends, earnings represent income (loss)
before income taxes plus fixed charges. Fixed charges consist of interest
expense on all indebtedness plus the interest portion of rental expense
on noncancelable leases, amortization of debt issuance costs, and
preferred stock dividends.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto included herewith. Financial data
and discussions relating to the year ended December 31, 1996 reflect the
combined results of operations of Rust, prior to the Acquisition and Brand
after the Acquisition.
OVERVIEW
The Company is the largest North American provider of industrial
scaffolding services which facilitate access to tall structures for
maintenance, turnarounds and capital projects, principally in the refining,
petrochemical, chemical, utility and pulp and paper industries. The Company
provides turnkey services which include equipment rental, labor for the
erection and dismantlement of the scaffolding and scaffolding design services.
The Company also provides scaffolding services to the commercial market
(primarily nonresidential construction) and sells a small amount of
scaffolding.
Approximately 84% of the Company's 1997 revenues were attributable to
on-going maintenance and turnarounds of industrial facilities. The Company
typically provides on-going maintenance services under long-term contracts; the
duration of these contracts is usually one to five years. Turnarounds occur
every one to four years depending on the industry and the type of turnaround
being performed. Although some turnarounds may be postponed for a period of
time, they are a necessary component of maintaining industrial facilities and
are required to ensure the safe and efficient operation of such facilities.
While the postponement of scheduled turnarounds causes fluctuations in the
Company's quarterly and annual results, the Company believes the necessity for
on-going maintenance and turnarounds provides a stable, recurring revenue base.
Revenues from capital projects, which represented approximately 4% of 1997
revenues, result from new plant construction, plant expansions and
modifications. Capital projects can and have had material impacts on the
Company's results of operations. For example, the Company provided scaffolding
services for the construction of a new refinery in St. Croix which resulted in
$24.1 million of revenues.
Commercial scaffolding revenues, which represented approximately 11% of
1997 revenues, are related to the level of nonresidential construction and
renovation. Demand for commercial scaffolding services has recently been high
due to the recent strength in the commercial construction industry. In 1997,
the Company increased its penetration of the commercial market, having opened
four new offices, expanded its sales force and invested $7.3 million in frame
and brace scaffolding inventory.
In November 1997, the Company implemented a cost reduction program which
is expected to reduce its annual operating overhead and selling, general and
administrative expenses by approximately $5.3 million. The major initiatives
included (i) eliminating 63 administrative and support positions and
consolidating certain administrative functions, (ii) restructuring and
renegotiating benefits programs, (iii) renegotiating the Company's insurance
premiums to reflect continued improvements in its safety record, (iv)
negotiating company-wide procurement contracts in order to take advantage of
volume pricing, and (v) implementing a new management information system to
improve inventory utilization and reduce equipment transportation expenses. The
Company recorded a one-time expense in the fourth quarter of 1997 of $437,000
to reflect severance and other expenses of the cost reduction program.
In connection with the Acquisition, WMI agreed to pay the Company a
quarterly fee of $725,000 for transition services for three years beginning on
December 31, 1996. Such payments will continue through September 30, 1999. In
addition, WMI agreed to pay for all historical accident-related claims in which
the accident occurred prior to the Acquisition. Because cash expenditures
related to accidents are paid out over time but accident-related expenses are
accrued in the period in which the accident occurs, the Company has a
significant non-cash claims expense ($2.9 million in 1997) which it anticipates
will decline over time.
18
<PAGE>
The Company's business is seasonal. End-use industries such as the
refining and utility industries experience increased demand for their products
during the summer months. Consequently, turnarounds are generally scheduled
during the first and fourth quarters of the year.
RESULTS OF OPERATIONS
The following discussion of results of operations is presented for the
fiscal years ended December 31, 1995, 1996 and 1997 and for the nine months
ended September 30, 1997 and 1998.
On September 30, 1996, the Company was formed and acquired the net assets
of Rust Scaffold Services, Inc. The acquisition was accounted for as a
purchase. Also on September 30, 1996, the Company entered into a credit
agreement pursuant to which $160.0 million was borrowed. As a result of the
acquisition and the borrowings, the periods prior to September 30, 1996 are not
comparable to the periods after September 30, 1996. For purposes of the tables
and discussion that follows, combined 1996 financial data represents the
summation of the results for Rust for the nine months ended September 30, 1996
and for Brand for the three months ended December 31, 1996. This 1996 data does
not include pro forma adjustments to reflect the acquisition or the borrowings,
which had the effect of increasing amortization and depreciation expense and
interest expense. The combined 1996 revenues, operating expenses and selling
and administrative expenses are presented for comparative purposes. Other
combined 1996 income and expense items are not presented as the information was
not considered meaningful.
The following tables set forth, for the periods indicated, certain
operating data expressed in dollar amounts and as a percentage of revenue:
SUMMARY OF HISTORICAL FINANCIAL RESULTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
RUST COMBINED BRAND
-------------- -------------- -----------------------------------------
NINE MONTHS
YEAR YEAR YEAR ENDED
ENDED ENDED ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, DECEMBER 31, -------------------------
1995 1996(1) 1997 1997 1998
-------------- -------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue ................................ $193,829 $169,181 $160,660 $118,173 $147,782
Operating Expenses ..................... 138,968 123,243 122,638 88,535 113,038
-------- -------- -------- -------- --------
Gross Profit .......................... 54,861 45,938 38,022 29,638 34,744
Selling and Administrative Expenses..... 25,807 20,568 25,840 16,868 19,868
Nonrecurring Start-up Expenses .........
-- -- 2,498 1,936 --
-------- -------- -------- -------- --------
Operating Income ....................... 29,054 25,370 9,684 10,834 14,876
Interest Expense ....................... 9,444 15,422 11,553 12,712
Interest Income ........................ (1,012) (397) (324) (171)
Other Expense, Net ..................... 853 -- -- --
-------- -------- -------- --------
Pre-Tax Income (Loss) ................. 19,769 (5,341) (395) 2,335
Provision for Income Tax ............... 8,300 -- -- --
Extraordinary items, Net of Tax ....... -- -- -- 4,329
-------- -------- -------- --------
Net Income (Loss) ..................... $ 11,469 $ (5,341) $ (395) $ (1,994)
======== ======== ======== ========
OTHER DATA:
EBITDA ................................. $ 36,803 $ 22,009 $ 19,711 $ 24,864
</TABLE>
- ----------
(1) Combined 1996 financial data represents the summation of the results for
Rust for the nine months ended September 30, 1996 and for Brand for the
three months ended December 31, 1996 and is not indicative of the results
the Company would have achieved for the full year had the Acquisition
occurred on January 1, 1996.
19
<PAGE>
SUMMARY OF HISTORICAL FINANCIAL RESULTS AS A PERCENTAGE OF REVENUE
<TABLE>
<CAPTION>
RUST COMBINED BRAND
-------------- -------------- -------------------------------------------
NINE MONTHS
YEAR YEAR YEAR ENDED
ENDED ENDED ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, DECEMBER 31, ---------------------------
1995 1996(1) 1997 1997 1998
-------------- -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue ................................ 100.0% 100.0% 100.0% 100% 100%
Operating Expenses ..................... 71.7 72.8 76.3 74.9 76.5
----- ----- ----- ----- -----
Gross Profit .......................... 28.3 27.2 23.7 25.1 23.5
Selling and Administrative Expenses..... 13.3 12.2 16.1 14.3 13.4
Nonrecurring Start-up Expenses ......... -- -- 1.6 1.6 --
----- ----- ----- ----- -----
Operating Income ....................... 15.0 15.0 6.0 9.2 10.1
Interest Expense ....................... 4.9 9.6 9.8 8.6
Interest Income ........................ ( 0.5) ( 0.2) ( 0.3) ( 0.1)
Other Expenses, Net .................... 0.4 -- -- --
----- ----- ----- -----
Pre-Tax Income (Loss) ................. 10.2 ( 3.4) ( 0.3) 1.6
Provision for Income Tax ............... 4.3 -- -- --
Extraordinary items, Net of Tax ....... -- -- -- 2.9
----- ----- ----- -----
Net Income (Loss) ..................... 5.9% ( 3.4)% (0.3)% (1.3)%
===== ===== ===== =====
OTHER DATA:
EBITDA ................................. 19.1% 15.3% 16.7% 16.8%
</TABLE>
- ----------
(1) Combined 1996 financial data represents the summation of the results for
Rust for the nine months ended September 30, 1996 and for Brand for the
three months ended December 31, 1996 and is not indicative of the results
the Company would have achieved for the full year had the Acquisition
occurred on January 1, 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Revenues. Revenues for the nine month period ended September 30, 1998
increased 25.1% to $147.8 million from $118.2 million for the same period in
1997. Labor revenue increased 29.6% to $107.0 million for the nine month period
ended September 30, 1998 as compared to the same period in 1997. Rental revenue
increased 20.1% to $36.4 million for the nine month period ended September 30,
1998 as compared to the same period in 1997. The increase in revenues was
primarily attributable to increased activity in the industrial scaffolding
market. Increased turnaround and capital maintenance activity as well as
unplanned utility outages in the U.S. Gulf Coast accounted for approximately
$17.2 million of the positive variance in the nine month period. Additionally,
in the northern part of the country, utility plant renovation and maintenance
work along with an increase in refinery turnarounds accounted for $6.9 million
of the positive variance in the nine month period.
Gross Profit. Gross profit for the nine month period ended September 30,
1998 increased 17.2% to $34.7 million from $29.6 million for the same period in
1997. Labor gross profit (labor revenue less labor cost) increased 12.5% to
$16.3 million for the nine month period ended September 30, 1998 as compared to
the same period in 1997. Gross profit as a percentage of revenue for the nine
month period ended September 30, 1998 decreased to 23.5% from 25.1% for the
same period in 1997. This decrease was primarily due to a higher mix of labor
revenue to total revenue for the nine month period. Labor profit margins are
lower than rental and sale profit margins. Much of the increased revenue was
from industrial projects requiring a high percentage of labor, thus causing
overall profit margins to be lower.
20
<PAGE>
Selling and Administrative Expenses. Selling and administrative expenses
for the nine month period ended September 30, 1998 increased 17.8% to $19.9
million from $16.9 million for the same period in 1997. Selling and
administrative expenses as a percentage of revenue for the nine month period
ended September 30, 1998 decreased to 13.4% from 14.3% for the same period in
1997. For the nine month period ended September 30, 1998, the savings realized
from a cost reduction program implemented in 1997 were offset by a $0.6 million
increase in payroll expense.
Operating Income. As a result of the above, operating income for the nine
months ended September 30, 1998 increased to $14.8 million from $10.8 million
for the same period in 1997. The operating income results from 1997 were
affected by certain non-recurring start-up expenses incurred by the Company as
a result of the Company's efforts to establish itself as a stand-alone entity.
Interest Expense. Interest expense for the nine month period ended
September 30, 1998 increased 10.0% to $12.7 million from $11.6 million for the
same period in 1997. The increase was mainly due to a higher weighted average
interest rate on all outstanding debt. For the first nine months of 1998 and
1997, the weighted average interest rate was 9.8% and 8.9%, respectively.
Extraordinary Items (net of tax). Extraordinary items for the nine months
ended September 30, 1998 were $4.3 million compared to $0 for the nine months
ended September 30, 1997. This extraordinary charge represents the write off of
the pro rata share of deferred financing costs related to the portion of the
term loans, which were part of the Bank Facility, repaid with proceeds from the
issuance of the 10 1/4% Senior Notes in February, 1998.
Net Loss. As a result of the above, net loss increased 404.8% for the nine
months ended September 30, 1998 to $(2.0) million from $(0.4) million for the
same period in 1997.
YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues. Revenues for the year ended December 31, 1997 were $160.7
million as compared to $169.2 million for the year ended December 31, 1996. The
decline in revenues is attributable to: (i) the loss of several contracts with
a single customer in 1996 which accounted for an approximate loss of $3.4
million in revenues compared to 1996 and (ii) the transfer, in connection with
the Acquisition, of a contract, which generated revenues in excess of $2.0
million in 1996, to a former sister corporation of the Company. Also
contributing to the decline was lengthened turnaround schedules at refineries
due to a strong operating environment in 1997. These decreases were partially
offset by several new accounts obtained during 1997, including three large
accounts which generated a total of $2.8 million.
Gross Profit. Gross profit for the year ended December 31, 1997 was $38.0
million as compared to $45.9 million for the year ended December 31, 1996. The
$7.9 million decline was due to lower revenue levels and a $3.2 million
increase in depreciation and amortization expenses resulting from the
Acquisition. An increase in gross profit as a percentage of revenues for labor
services and a decrease in insurance claims partially offset the decrease in
gross profit.
Selling and Administrative Expenses. Selling and administrative expenses
for the year ended December 31, 1997 were $25.8 million as compared to $20.6
million for the year ended December 31, 1996. The $5.2 million increase was due
to the hiring of additional sales personnel and the opening of four new
commercial scaffolding offices. During 1997, selling and administrative
expenses were reduced by $700,000 as a result of payments by WMI pursuant to
the transition services agreement relating to the Acquisition.
Nonrecurring Start-up Expenses. In 1997, the Company incurred certain
expenses to establish the Company as a stand-alone entity. These expenses were
comprised of costs related to establishing benefit plans, a treasury
department, strategic planning and cash management.
Operating Income. Operating income for the year ended December 31, 1997
was $9.7 million as compared to $25.4 million for the year ended December 31,
1996. The $15.7 million decrease was attributable primarily to a decrease in
revenues, increased depreciation and, to a lesser extent, to an increase in
direct costs as a percentage of revenues and in nonrecurring start-up expenses
and an increase in selling and administrative expenses.
21
<PAGE>
YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Revenues for the year ended December 31, 1996 were $169.2
million as compared to $193.8 million for the year ended December 31, 1995. The
$24.6 million decrease was primarily attributable to two factors. First, 1996
revenues decreased $8.6 million from 1995 due to many customers completing work
in 1995 to comply with clean fuels legislation in California which dictated
that refineries meet stringent environmental requirements by the end of 1995.
Plant modifications to comply with this legislation also caused turnaround
activity to be unusually high during 1995 as customers took advantage of the
opportunity to consolidate the two activities. Second, the Company lost four
contracts with a single major customer which had the impact of reducing the
revenues in the year ended December 31, 1996 by $10.6 million as compared to
the year ended December 31, 1995.
Gross Profit. Gross profit for the year ended December 31, 1996 was $45.9
million as compared to $54.9 million for the year ended December 31, 1995. The
$9.0 million decline was due to a decrease in revenues of 12.9% and a $700,000
increase in depreciation and amortization expenses related to the Acquisition.
Partially offsetting the declines were lower claims expenses due to a better
safety record in 1996.
Selling and Administrative Expenses. Selling and administrative expenses
for the year ended December 31, 1996 were $20.6 million as compared to $25.8
million for the year ended December 31, 1995. The $5.2 million decrease was due
to a restructuring at WMI during the fourth quarter of 1995 which resulted in a
$4.0 million reduction in Company expenses due to the consolidation of the
Company's corporate and regional overhead expenses into the WMI infrastructure.
Also reducing selling and administrative expenses were lower benefit costs
obtained by moving from the Rust plans to the WMI plans, lower allocation
charges from WMI and lower facility expenses created by merging operations.
Offsetting these decreases were higher ($1.2 million) bonus expenses. The
Company received a payment of $725,000 from WMI for transition services, of
which $425,000 was recorded as a reduction of selling and administrative
expenses in 1996.
Operating Income. Operating income for the year ended December 31, 1996
was $25.4 million as compared to $29.1 million for the year ended December 31,
1995. The $3.7 million decrease in operating income is attributable primarily
to a decrease in revenues which was not fully offset by the decrease in direct
costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically utilized internal cash flow from operations
and borrowings under the Bank Facility to fund its operations, capital
expenditures, and working capital requirements. As of September 30, 1998, the
Company had working capital of $13.2 million and cash of $5.1 million.
Historically, the principal uses of cash have been capital expenditures
(primarily scaffolding) and working capital. Since the Acquisition, the Company
has also used cash to repay the term loans which were part of the Bank Facility
provided by DLJ Capital and BofA, which payments amounted to $2.0 million in
1996 and $8.3 million in 1997. In February, 1998, $119.8 million of the term
loans were repaid with proceeds from the offering of the 10 1/4% Senior Notes
and $500,000 in payments were made in June, 1998. Additionally, the Company
paid $6.3 million in interest relating to the 10 1/4% Senior Notes in August,
1998 and will pay approximately $6.7 million in interest relating to the notes
in February, 1999.
For the nine months ended September 30, 1998, the Company provided cash of
$2.9 million, and for the year ended December 31, 1995, the nine months ended
September 30, 1996, the three months ended December 31, 1996, the year ended
December 31, 1997 and the nine months ended September 30, 1997 and 1998 cash
provided by (used for) operating activities was $35.6 million, $28.5 million,
$5.0 million, $12.0 million, $11.9 million and $15.7 million, respectively.
The Company's capital expenditure requirements are comprised of
maintenance and expansion expenditures. The Company's maintenance capital
expenditure requirements are approximately $2.5 million to $3.5 million annually
and are generally used for scaffolding planks and other items
22
<PAGE>
used in the business, such as trucks. Expansion capital expenditures are for
new scaffolding, are discretionary and vary annually based on the Company's
level of scaffolding rental activity and management's growth expectations.
During the nine months ended September 30, 1998, total capital expenditures
were $14.3 million, of which approximately $9.7 million was spent on expansion
capital expenditures. Expansion capital expenditures in 1995, 1996 and 1997
were $5.8 million, $1.3 million and $6.7 million, respectively, and were
principally used to expand the Company's inventory of systems scaffolding for
use in industrial applications.
Pursuant to a credit agreement dated as of September 30, 1996, the Company
entered into the Bank Facility. The Bank Facility consisted of three term loan
facilities, under which the Company borrowed a total of $160.0 million
immediately upon closing of the Bank Facility, and a $30.0 million revolving
loan facility. All but $30.0 million of the loans outstanding under the term
loan facilities was repaid on February 20, 1998 with the proceeds of the 10 1/4%
Senior Note offering. Borrowings under the revolving loan facility are governed
by a borrowing base equal to 85% of eligible accounts receivable. A $15.0
million sub-facility is available for the issuance of letters of credit. As of
September 30, 1998, the Company had $13.1 million in unused senior secured
borrowing capacity under the Bank Facility. The interest rate on each loan
facility under the Bank Facility is variable. During the nine months ended
September 30, 1998, the interest rate on loans outstanding under the term loan
facility was an annual dollar-weighted rate of 8.9%. Total payments for
interest and principal by the Company under the Bank Facility in 1996 were $3.0
million and $2.0 million, respectively, and in 1997 were $14.1 million and $8.3
million, respectively. During the nine months ended September 30, 1998 total
payments for interest were $10.7 million. During the nine months ended
September 30, 1998, $120.8 million of the term loans were repaid of which
$119.8 million was from the proceeds of the 101/4% Senior Note offering.
The Bank Facility contains financial and operating covenants, including
among other things, that the Company maintain certain financial ratios and
satisfy certain financial tests, and imposes limitations on the Company's
ability to make capital expenditures, to incur indebtedness and to pay
dividends. As of December 31, 1997, the Company was not in compliance with
certain covenants in the Bank Facility. The Company obtained waivers of such
covenant violations from the lenders under the Bank Facility. The Company also
obtained an amendment to the Bank Facility which became effective upon the
consummation of the 10 1/4% Senior Note offering and, among other things, reset
the financial ratios and financial tests required to be met thereunder to
levels that are more consistent with the Company's capital structure following
the 10 1/4% Senior Note offering and its current and expected financial
performance. In addition, on November 20, 1998, the Company sought and obtained
the consent of the lenders under the Bank Facility to treat certain capital
expenditures incurred in connection with two particular acquisitions as
investments rather than as capital expenditures.
On February 25, 1998, the Company raised $125.6 million from the 10 1/4%
Senior Note offering. Substantially all of the net proceeds of the sale of the
notes by the Company were used to reduce outstanding indebtedness under the
Bank Facility. Two term loan facilities and the revolving loan facility, each
included in the Bank Facility, were repaid in full, and loans under a third
term loan facility, also a part of the Bank Facility, were paid down such that
the aggregate principal amount of loans outstanding under the remaining term
loan facility after such prepayment was $30.0 million. In addition, pursuant to
the amendment to the Bank Facility obtained by the Company, the Bank Facility
was reduced to $60.0 million. Certain provisions contained in the credit
agreement governing the Bank Facility were amended to eliminate a requirement
that revolving loans be periodically reduced. Also, certain of the covenants
contained in the credit agreement were amended to permit the Company to incur
certain additional indebtedness, engage in a broader range of business, make
certain additional investments and capital expenditures and reinvest asset
disposition proceeds within 180 days, rather than prepay the term loan
facilities with such proceeds.
NET OPERATING LOSSES
As of December 31, 1997, the Company had estimated net operating loss
carryforwards, resulting primarily from depreciation timing differences, of
approximately $65.9 million for U.S. income tax purposes. As a result of such
loss carryforwards, cash paid for income taxes in 1997 was minimal. The Company
does not expect to expend cash for taxes in the next several years.
23
<PAGE>
EFFECT OF INFLATION; SEASONALITY
Inflation has not generally been a material factor affecting the Company's
business. In recent years, the cost of scaffolding equipment has remained
relatively stable due to competitive pressures within the industry. The
Company's general operating expenses, such as salaries, employee benefits and
facilities costs are subject to normal inflationary pressures.
The operations of the Company are generally subject to seasonal
fluctuations coinciding with the spring and fall turnaround schedules of its
major customers.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have date sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions.
The Company recognizes the importance of the Year 2000 problem and has
completed the first phase of identifying all mission critical information
technology ("IT") and non-IT systems that are affected. These systems include
all computer workstations, telephone/PBX systems, computer operating systems
and accounting, data processing and other miscellaneous systems. Various
systems, including the core billing/rental systems, are Year 2000 compliant.
The Company expects all other systems, including key financial systems, to be
Year 2000 compliant by October 1999.
The Company is not presently aware of any Year 2000 issues encountered by
its business partners that would materially impact the Company's operations.
There can be no assurance that the Company will not experience operational
difficulties as a result of Year 2000 issues either arising out of internal
systems or caused by its business partners which may have a material adverse
effect on its business operations.
The Company estimates that the total cost for executing the Year 2000 plan
will not exceed $50,000 and estimates that the Year 2000 plan for its financial
systems will be completed by May 1999. In planning for the most likely worst
case scenario, all major elements in the Company's comprehensive program have
been addressed. The Company's current contingency plan will be to replace only
those individual financial system applications that would not be Year 2000
compliant by mid 1999.
The Company's Year 2000 compliance program is divided into seven major
projects as shown in the table below.
<TABLE>
<CAPTION>
PERCENT
COMPLETE
AS OF
SEPTEMBER
YEAR 2000 PROJECT TIME FRAME 30, 1998
- -------------------------------------------------- --------------- ----------
<S> <C> <C>
Review IT system infrastructure .................. 05/98 - 07/98 100
Review non-IT systems ............................ 06/98 - 08/98 100
Upgrade non-IT systems ........................... 07/98 - 10/99 20
Upgrade PBX/phone systems ........................ 11/98 - 09/99 20
PC workstation review and upgrade ................ 07/98 - 08/99 40
Update core business distributed systems ......... 04/98 - 07/98 100
Update core business centralized systems ......... 07/98 - 05/99 20
</TABLE>
ACCOUNTING STANDARD NOT YET IMPLEMENTED
In June 1998, the Financial Accounting Standards Board (FASB) adopted SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative
24
<PAGE>
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value and that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. The Company has not yet quantified the impacts of adopting SFAS
No. 133 on its consolidated financial statements nor has it determined the
timing or method of its adoption of SFAS No. 133. However, SFAS No. 133 could
increase volatility in earnings and other comprehensive income.
25
<PAGE>
BUSINESS
OVERVIEW
The Company is the largest North American provider of industrial
scaffolding rental, erection, dismantlement and design services. The Company's
services facilitate access to tall structures for on-going maintenance,
turnarounds and capital projects, principally in the refining, petrochemical,
chemical, utility and pulp and paper industries. The Company estimates that for
1997 it had a 25% market share of the $575 million North American industrial
scaffolding services market and had industrial scaffolding revenues in excess
of three times that of its largest competitor. The Company's turnkey services
include equipment rental (accounting for approximately 24%, 27%, and 25% of
total revenue for the years 1995, 1996 and 1997, respectively), labor for the
erection and dismantlement of the scaffolding (accounting for approximately
72%, 70% and 70% of total revenue for the years 1995, 1996 and 1997,
respectively) and scaffolding design services. The Company delivers its
services through an extensive field service organization of approximately 2,700
employees in 31 field offices located throughout the United States and two in
Canada. The Company also provides scaffolding services to the commercial market
(primarily nonresidential construction) and sells a small amount of
scaffolding. For the twelve months ended September 30, 1998, the Company
generated revenues and a net loss of $190.3 million and $6.9 million,
respectively.
Approximately 84% of the Company's 1997 revenues were attributable to
on-going maintenance and turnarounds of industrial facilities. The Company
typically provides on-going maintenance services under long-term contracts; the
duration of these contracts ranges between one and five years. Turnarounds
occur every one to four years depending on the industry and the type of
turnaround being performed. Although some turnarounds may be postponed for a
period of time, they are a necessary component of maintaining industrial
facilities and are required to ensure the safe and efficient operation of such
facilities. The Company believes that the necessity for on-going maintenance
and turnarounds provides it with a stable, recurring revenue base.
The Company believes its position as the largest supplier of industrial
scaffolding provides it with a number of competitive advantages including (i)
the ability to offer national coverage to large customers, (ii) the ability to
provide required personnel and scaffolding to process major turnarounds and
unanticipated plant outages, (iii) higher asset utilization through the
shifting of assets across regions and across its large customer base, (iv)
purchasing leverage with scaffolding manufacturers, and (v) comprehensive
safety training programs which have resulted in an accident incident rate which
is well below the industry average (total OSHA recordable injuries per 200,000
man hours of 2.3 in 1997 compared to the industry average of 12.5 in 1997) and
have enabled the Company to reduce insurance costs and accident-related
expenses. The Company's size also enables it to maintain its own trucking fleet
and to provide a design department that specializes in the custom design of
industrial scaffolding, which the Company uses to minimize the amount of
scaffolding used and to maximize labor efficiency thereby providing the Company
with a competitive advantage.
BUSINESS STRATEGY
The Company has developed a business strategy which it believes will
enable it to profitably grow future revenue and cash flow. The key components
of this strategy are:
Leverage existing strengths. The Company's existing strengths include
longstanding customer relationships, extensive equipment resources, significant
labor capacity and an industry-leading safety record. These strengths have
enabled the Company to gain its current substantial market share and to expand
its business. The Company will utilize these strengths to retain its
maintenance contracts and to aggressively pursue turnarounds and capital
projects with its existing customers and to expand scaffolding services to such
customers' other facilities.
Target underpenetrated industrial segments. Due to the Company's leading
market position and extensive service infrastructure, the Company has the
capacity to service several industries in which, due to limited historical
focus, the Company has had a relatively low market share. These include the
26
<PAGE>
chemical, utilities and pulp and paper industries. To increase its penetration
in these markets, the Company has expanded its sales force, initiated incentive
and training programs and created a sales management function to target
opportunities and monitor the effectiveness of the sales force.
Reduce operating costs. In November 1997, the Company implemented a cost
reduction program which is expected to reduce its annual operating overhead and
selling, general and administrative expenses by approximately $5.3 million. The
major initiatives include (i) eliminating 63 administrative and support
positions and consolidating certain administrative functions, (ii)
restructuring and renegotiating benefits programs, (iii) renegotiating the
Company's insurance premiums to reflect continued improvements in its safety
record, (iv) negotiating company-wide procurement contracts in order to take
advantage of volume pricing, and (v) implementing a new management information
system to improve inventory utilization and reduce equipment transportation
expenses.
Pursue complementary acquisitions. The Company intends to pursue
complementary acquisitions where significant consolidation savings and
economies of scale can be achieved. The scaffolding industry is characterized
by single-office or regional companies, many of which are undercapitalized and
have limited scaffolding inventories. The Company intends to focus its
acquisition strategy on companies which have long-term contracts or an
expertise in a certain industry or scaffolding application.
On September 1, 1998, the Company finalized the purchase of Scaffold
Rental & Erection, Inc. ("SRE"). SRE provides fixed scaffolding rentals,
erection and dismantlement to the electric utilities and heavy commercial
market primarily in Georgia and Tennessee. On October 2, 1998, the Company
finalized the purchase of Brook Company ("Brook"). Brook provides viewing
stands and tents for special events primarily in the southeastern states.
Expand its commercial scaffolding operations. The Company intends to
utilize its existing infrastructure to expand its position in the commercial
market. To increase its penetration of the commercial market, the Company has
targeted large-scale new construction and renovation projects, which require
relatively complex scaffolding. Further, the Company has opened new offices in
four cities and expanded its sales force and its inventory of frame and brace
scaffolding. The Company believes its industry-leading safety record provides
it with a competitive advantage in pursuing these commercial scaffolding market
opportunities in the future. In November 1996, OSHA enacted stricter
regulations regarding training and safety in the commercial scaffolding
industry. As a result, safety has become a key consideration for commercial
customers.
THE INDUSTRIAL SCAFFOLDING MARKET
Overview
The industrial scaffolding market represents approximately $575 million of
the $1.3 billion scaffolding market. Industrial customers generally require
systems scaffolding, which is highly versatile, can be quickly erected and
dismantled, is capable of conforming to irregularly shaped structures and
requires a higher level of skill to erect and dismantle. Principal end-use
industries and their estimated percent of the total industrial market for 1996
were: (i) refineries--31%; (ii) petrochemical and chemical plants--30%; (iii)
utilities--17%; (iv) pulp and paper mills--11%; and (v) other industrial users
including aerospace, ship building and other miscellaneous industrial
applications--11%. Scaffolding is used by industrial customers for on-going
maintenance, turnarounds and capital projects. Since turnarounds may require
the complete shutdown of a facility, speed and reliability are key customer
considerations. Safety is another important consideration for industrial
customers. The industrial scaffolding market is fragmented and is serviced
predominantly by scaffolding specialists such as the Company.
End-Use Industries
The primary end-use industries for both the Company and the industrial
scaffolding market in general are refineries, petrochemical and chemical
plants, utilities, pulp and paper mills and other industries such as the
aerospace, ship building and certain miscellaneous industries.
27
<PAGE>
Refining Industry. The refining industry, the Company's and the industrial
scaffolding market's largest end-use industry, accounted for approximately 31%
of the 1996 industrial scaffolding market and represented approximately 42% of
the Company's revenues for 1997. A maintenance contract at a refinery generates
between $250,000 and $2.0 million of scaffolding revenues annually, depending
on the size of the refinery and the scope of the contract (i.e., rentals and
labor or rental only). A major turnaround typically generates between $2.0 and
$4.0 million of revenues to the scaffolding services provider, while a minor
turnaround typically generates in excess of $1.0 million. Turnarounds are
essential at refineries as the failure to overhaul equipment may ultimately
jeopardize the safe and efficient operation of a plant. Capital projects
include greenfield construction, plant expansions, restoration of mothballed
refineries, upgrading the heavy crude capability of refineries and compliance
with new environmental regulations. Capital projects have generated as much as
$24.1 million in scaffolding revenues for the Company on a single project.
It is not likely that any refineries will be closed permanently in the
near future, due to high exit barriers caused by strict environmental laws
which make it prohibitively expensive to abandon a refinery. In addition,
refineries are generally run at full capacity due to the high fixed costs, and
therefore maintenance operations are not significantly affected by demand.
Petrochemical and Chemical. The petrochemical and chemical industries
accounted for approximately 30% of domestic industrial scaffolding revenues and
represented approximately 14% of the Company's total revenues for 1997. The
petrochemical and chemical industries also use scaffolding services primarily
for maintenance and turnarounds, as well as capital projects. Engineering and
construction firms often provide on-going general maintenance at facilities
which they originally constructed. As part of such maintenance services,
engineering and construction firms either erect their own scaffolding or, to a
lesser extent, subcontract such services out to scaffolding specialists such as
the Company. The turnaround schedules of petrochemical and chemical plants
generally are similar to refineries, but depending on the type of chemical
being produced at a plant, turnarounds may be more frequent. Turnarounds at
petrochemical and chemical plants typically generate revenues between $1.0 and
$2.0 million. The petrochemical industry is currently undergoing expansion and
current supply is insufficient to meet high demand. Based on requests for
proposal from a number of petrochemical and chemical companies, the Company
expects a number of new facilities to begin construction to address this
demand.
Utilities. The utility industry accounted for approximately 17% of
industrial scaffolding revenues and represented approximately 14% of the
Company's revenues for 1997. Since plant maintenance has historically been
incorporated into a utility's rate base, utilities have maintained regular
turnaround schedules. A turnaround at a utility typically generates $75,000 to
$175,000 in scaffolding revenues; however, turnarounds may generate
substantially more revenues depending on the extent of a project. Scaffolding
services for on-going maintenance are often completed in-house.
Pulp and Paper. The pulp and paper industry accounted for approximately
11% of industrial scaffolding revenues and represented approximately 4% of the
Company's revenues for 1997. Scaffolding services for on-going maintenance are
generally provided in-house. A turnaround at a major facility can generate
scaffolding revenues in excess of $1.0 million while a small facility will
typically generate revenues of $50,000 to $100,000. Strong demand for pulp has
generally forced mills to stretch turnaround schedules from 12 months to 18
months.
Industrial Scaffolding Job Types
Industrial uses for scaffolding services include on-going maintenance,
turnarounds and capital projects.
On-going Maintenance. On-going maintenance work is typically performed
under long-term contracts which range between one and five years. On-going
maintenance represented approximately 50% of the total industrial scaffolding
market in 1996. On-going maintenance contracts often cover planned outages,
whereby typically one or a few devices in the plant are taken down for a short
period of time. Performance and customer relationships at all levels are
critical to maintaining these contracts. Having a maintenance contract in place
is an important competitive advantage when seeking future turnaround or
emergency scaffolding jobs.
Turnarounds. Turnarounds are major equipment overhauls which involve
shutting down all or a significant portion of a plant. Turnarounds represented
approximately 35% of the total industrial
28
<PAGE>
scaffolding market in 1996. Turnarounds occur on a regular basis, typically
every one to two years for minor turnarounds and every four years for major
turnarounds. However, turnarounds are often delayed during periods of high
operating profit for end users, but they eventually must be completed. Though
contracts for planned turnarounds are typically bid out, the scaffold
specialist with the maintenance contract is frequently awarded the turnaround
contract. Contracts for emergency outages due to an explosion or natural
disaster are generally handled by the contractor who can mobilize a large
amount of equipment and labor most effectively.
Capital Projects. Capital projects represented approximately 15% of the
industrial scaffolding market in 1996; however, this type of revenue is
cyclical. For instance, a single project has generated $24.1 million in
revenues and certain clean fuel acts resulted in $8.6 million of revenues. The
amount of revenues from capital projects fluctuates from year to year,
depending on the fundamentals of the end users, but can contribute
significantly to the Company's revenues.
A majority of the capital projects in the 1990s have been related to
reactivation of mothballed refineries and compliance with the clean air acts in
California. Plant expansions require two to three years to construct and
generally produce several million dollars of scaffolding revenues. The Company
believes that at least ten companies, including several of its customers, are
currently planning major plant expansions.
THE COMMERCIAL SCAFFOLDING MARKET
The $725 million commercial scaffolding market is characterized by few
national and many regional competitors. Commercial scaffolding is used
primarily in nonresidential construction and renovation. Commercial
applications are generally characterized by regularly shaped structures with
few contoured or angled surfaces. Due to the simple shapes required, commercial
jobs generally utilize frame and brace scaffolding, a less versatile type of
equipment which is not suited to industrial applications. Commercial
scaffolding requires a less skilled work force and has historically been less
focused on safety issues. These factors combine to make the commercial market
highly fragmented with low barriers to entry. In November 1996, OSHA enacted
stricter regulations regarding training and safety in the commercial
scaffolding industry. As a result, safety has become a key consideration for
commercial customers.
EQUIPMENT
The Company maintains a substantial inventory of scaffolding at its 33
field offices as well as at customer sites throughout the United States and in
Canada. In order to maximize profitability, the Company monitors asset
utilization daily and can quickly move scaffolding between sites. The Company's
size and national coverage gives it a significant advantage in this respect.
The type of scaffolding used by the Company for a project depends on a number
of factors, including the preference of local tradespeople based on their
familiarity with a particular type of scaffolding and the availability in the
customer's inventory of a particular kind of scaffolding which the client has
requested that the Company utilize. The Company utilizes three types of
scaffolding: systems, tube and clamp and frame and brace. The Company also
offers Sky Climber motorized scaffolding.
Systems scaffolding. Systems scaffolding consists of interlocking
horizontal, vertical and platform pieces which can be assembled and dismantled
quickly and with less labor than the other types of scaffolding. Systems
scaffolding is very versatile because its pieces can be connected in a variety
of ways to conform to the contours of the area in which the scaffolding is
required. For this reason, systems scaffolding is particularly well-suited for
refineries which contain pipes and vessels around which the scaffolding must be
erected.
Tube and clamp scaffolding. Tube and clamp scaffolding offers similar
versatility to systems scaffolding and thus can be used in similar
applications. However, tube and clamp scaffolding must be bolted together with
clamps and is therefore more difficult and time consuming to assemble. Tube and
clamp scaffolding was the predecessor to and is generally being superceded by
systems scaffolding.
Frame and brace scaffolding. Frame and brace scaffolding generally uses
pre-constructed pieces consisting of vertical supports and platforms and is
predominantly used for commercial projects.
29
<PAGE>
Frame and brace scaffolding may be assembled and dismantled quickly but does
not offer the versatility of systems or tube and clamp scaffolding.
Motorized scaffolding. Motorized scaffolding consists of motors, platforms
and rigging equipment and the rigging is performed by either the Company or the
customer. The Company sells, rents and provides maintenance services for
motorized scaffolding under the "Sky Climber" brand name. The majority of Sky
Climber customers are commercial users such as painters, window washers,
waterproofers, building restorers and construction companies.
COMPETITION
The Company is the largest North American provider of industrial
scaffolding services with an approximately 25% market share and 1997 industrial
scaffolding revenues that were larger than the industrial scaffolding revenues
for its three largest competitors combined. In 1996, the next five largest
scaffolding specialists after the Company, Aluma Systems USA, Inc., Safway
Steel Products, Patent Construction Systems, Interstate Scaffolding Inc. and
BET, accounted for approximately 27% of the total market, engineering and
construction firms account for approximately 23% and numerous small, thinly
capitalized, local competitors account for approximately 24%. Engineering and
construction firms often subcontract scaffolding services to scaffolding
specialists including the Company.
SAFETY
Safety is an important consideration in the selection and continued
employment of a scaffolding services provider. The Company maintains workforce
expertise through extensive internal and external training and safety programs.
The Company believes that its highly skilled workforce translates into lower
accident rates that benefit both the Company and its customers through lower
insurance and accident-related expenses. The Company's safety record is among
the best of any scaffolding company in the United States. The Company's rate of
total OSHA recordable injuries per 200,000 man hours was 2.3 for the year ended
December 31, 1997 and 1.9 for the nine months ended September 30, 1998 as
compared to an industry average (according to National Safety Council 1997
accident statistics) for the year ended December 31, 1997 of 12.5. Compensation
plans for the Company's project managers have been designed to include
incentives to reduce the numbers of accidents, lost work days and lost time
rates.
SALES AND MARKETING
The Company's selling organization consists of 38 sales team members.
These individuals are located throughout the Company's network of service
locations. Each sales team member reports to the respective Division Manager,
who is responsible for managing day-to-day sales activities.
The Company's sales force is charged with identifying and pursuing target
accounts, estimating and bidding on work, closing the sale and coordinating the
initial work relationship with the Company's broader operating team. During
1997, the Company established a National Sales Manager position, which is
charged with the development and implementation of an overall sales reporting
program.
As identified through its strategic planning process, the Company has
developed a comprehensive database of all potential scaffolding opportunities
and a sales plan for each of its Divisions. Using this customer database as a
foundation, the most promising target accounts are then assigned to individual
sales team members. The sales plans consist of two interactive elements. The
broader element is an assessment of the market segments that exist within a
given territory and the identification of those segments that offer the best
opportunity for growth in the territory. The more focused element is the
identification of the individual customer accounts that make up the local
population of each of the target market segments. Annual incremental revenue
goals are established for each sales team member, and actual sales results will
be tracked using the several databases that are being installed.
CUSTOMERS
Brand's primary customers include large oil refineries and petrochemical
plants. The Company's top ten customers accounted for over one third of 1997
revenues. The Company's ten largest
30
<PAGE>
customers, when measured by 1997 revenue to the Company, were Exxon Corporation
("Exxon"), Arco, Mobil Corporation, Texaco Inc., Phillips, Citgo Petroleum
Corporation, Lyondell Petrochemical Company, Dupont, Houston Lighting & Power
Company and Shell Oil. Exxon, the Company's largest customer, accounted for
approximately 17% of the Company's 1997 revenues. The Company has contractual
relationships with all of its primary customers. Each of these contracts
contains terms and conditions specific to each customer and are cancellable by
either party by 30 day written notification. Because the contracts are entered
into on a project-by-project basis and typically have a defined scope of work,
they do not have minimum purchase requirements. The percentage of total Company
revenues accounted for by each customer varies greatly from year to year.
MANAGEMENT INFORMATION SYSTEMS
In 1997, the Company began an analysis of its management information
systems capabilities. It has committed to developing a data communications
backbone and data server that will be used as the foundation for an integrated
operating system. During the first quarter of 1998, two new programs began to
operate: a rental billing module, which gives the Company a centralized ability
to analyze price structures, and a revenue and inventory planning module, which
allows the Company to track the company-wide utilization of inventory and to
plan better for future inventory needs. The Company upgraded its financial
software in the second half of 1998 to increase both data base informational
capabilities and to prepare the Company to be year 2000 compliant by June,
1999.
PROPERTY
The Company operates facilities in 34 locations. The Company owns two
locations in Canada, two in Texas, one in Alabama and one in Louisiana. The
Company leases its remaining 27 facilities as well as one site used for its
corporate headquarters. The Company's facilities typically include a small
office, warehouse and yard and range in size from 2,000 to 40,000 square feet
under roof with yards from half an acre to more than four acres. The Company's
headquarters are located in a 9,500 square foot facility in Chesterfield,
Missouri. The Company's facilities are concentrated near its customers to
minimize transportation costs, to shorten lead times and to strengthen
oversight and project management abilities.
EMPLOYEES
As of September 30, 1998, the Company had approximately 2,700 employees of
which approximately 800 were union employees. The Company maintains both union
and non-union workforces to meet the demands of its customers. The Company
primarily contracts with the local offices of the Carpenters Union and the
Laborers Union. The Company believes it has good relationships with both unions
and with its employees generally.
INSURANCE
The Company maintains standard insurance for commercial general liability,
workers compensation and automobile liability, as well as, specialty insurance
coverage for directors' and officers' liability, wrongful employment practices,
commercial crime, architects' and engineers' liability and an umbrella
liability through several insurers.
LITIGATION
The Company is not party to litigation which, in the opinion of the
Company's management, could have a material adverse effect on the Company's
financial position, results of operations or liquidity.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to
directors and executive officers of the Company. Each director and officer
holds office until a successor is elected and qualified or until his earlier
death, resignation or removal.
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES
- --------------------- ----- ---------------------------------------------------------------
<S> <C> <C>
David L. Jaffe 40 Chairman of the Board
John M. Monter 51 Chief Executive Officer, President and Director
Ian R. Alexander 52 Chief Financial Officer, Vice President, Finance and Secretary
David R. Cichy 48 Vice President, Operations -- Northern Region
Raymond L. Edwards 45 Vice President, Administration
Guy S. Huelat 37 Vice President, Resource Management
Otto K. Knoll 45 Vice President, Operations -- Western Region
James "Marty" McGee 42 Vice President, Operations -- Southeast Region
Scott M. Robinson 51 Vice President, Operations -- Central Region
Robert Bonczek 54 Director
James S. Carlisle 56 Director
Vincent P. Langone 56 Director
D.P. "Pat" Payne 56 Director
Karl R. Wyss 58 Director
</TABLE>
DAVID L. JAFFE, CHAIRMAN OF THE BOARD: Mr. Jaffe has been a Managing
Director of DLJ Merchant Banking, Inc. ("DLJMB, Inc.") since 1995 and has been
Chairman of the Board of the Company since the Acquisition. Prior to serving in
his current position with DLJMB, Inc., Mr. Jaffe was a Senior Vice President at
DLJMB, Inc. He serves on the boards of EZ Buy & EZ Sell Recycler Corporation,
OSF Holdings, Inc., Terra Nova Group, OHA Financial, Inc., Pharmaceutical Fine
Chemicals S.A. and Duane Reade Inc. Mr. Jaffe also serves as a director of the
Creative Arts Workshop for Kids, Inc. of New York.
JOHN M. MONTER, CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR: Mr.
Monter has served as a director, Chief Executive Officer and President since
the Acquisition. Prior to joining the Company at the time of the Acquisition,
Mr. Monter held a variety of corporate and operating assignments at Cooper
Industries, Inc. ("Cooper") where he began his career in 1977. Mr. Monter was
President of the Bussmann Division of Cooper, which manufactures electrical
overcurrent fuses, from 1992 to 1996.
IAN R. ALEXANDER, CHIEF FINANCIAL OFFICER, VICE PRESIDENT, FINANCE AND
SECRETARY: Prior to joining the Company as Chief Financial Officer, Vice
President, Finance and Secretary in April 1998, Mr. Alexander had a variety of
assignments with BP Oil Company from 1973 until 1993 in Europe, Africa and the
U.S.A. He then became Chief Financial Officer and Executive Vice President of
Purina Mills, Inc. until it was sold to Koch Industries in March, 1998.
DAVID R. CICHY, VICE PRESIDENT, OPERATIONS -- NORTHERN REGION: Mr. Cichy
was appointed Vice President, Operations -- Northern Region in 1996. Beginning
in 1978, Mr. Cichy served in various construction management functions with
Rust Industrial including Vice President, Resource Management from 1993 to
1996.
RAYMOND L. EDWARDS, VICE PRESIDENT, ADMINISTRATION: Mr. Edwards joined the
Company in his current role in November 1996. Prior to joining the Company, he
held a variety of management positions, most recently, with Cooper from 1984 to
1996, including Vice President, Human Resources from 1990 to 1996.
GUY S. HUELAT, VICE PRESIDENT, RESOURCE MANAGEMENT: Mr. Huelat joined the
Company in January 1997 in his current position. Prior to joining the Company,
Mr. Huelat was a Plant Manager from 1989 to 1994 and a Materials Manager from
1994 to 1996 at Cooper. From 1996 to 1997, he was Director of Logistics for
Planning and Customer Service for Kimble Glass, Inc.
32
<PAGE>
OTTO K. KNOLL, VICE PRESIDENT, OPERATIONS -- WESTERN REGION: Mr. Knoll
has held his current position since the Acquisition. From 1994 until the
Acquisition, Mr. Knoll served as Western Region Vice President of Rust
Industrial. From 1991 to 1994, Mr. Knoll was a Vice President,
Operations--Western Region for Serv-Tech, Inc.
JAMES "MARTY" MCGEE, VICE PRESIDENT, OPERATIONS -- SOUTHEAST REGION: Mr.
McGee has held his current position since the Acquisition. From 1993 until the
Acquisition, Mr. McGee held various Region Management positions with Rust
Industrial and WMI. Mr. McGee has been with the Company in various management
positions since 1981 including President, Southern Regional Scaffolding in
1993, Southern Region Manager in 1994 and Vice President, Southern Operations
from 1995 to 1996.
SCOTT M. ROBINSON, VICE PRESIDENT, OPERATIONS -- CENTRAL REGION: Mr.
Robinson joined the Company as Vice President, Marketing in March 1997 and
assumed his present position in November 1997. Prior to joining the Company,
Mr. Robinson held various positions at Cooper, including Vice President, Sales
from 1993 to 1997 and Vice President, Marketing from 1987 to 1993.
ROBERT BONCZEK, DIRECTOR: Mr. Bonczek has been President and a director
of Aspentree Capital, a private money management firm since 1991, and has been
a director of the Company since the Acquisition. He is a legal consultant to
Wilmer, Cutler and Pickering. Mr. Bonczek is a director of DCV, Inc.
JAMES S. CARLISLE, DIRECTOR: Mr. Carlisle has been Chief Executive of
Carlisle Enterprises, LLC, a firm engaged in the acquisition and management of
leveraged buyout companies since 1989, and has been a director of the Company
since the Acquisition.
VINCENT P. LANGONE, DIRECTOR: Mr. Langone has been a director of the
Company since the Acquisition. Mr. Langone has been Chairman, President and
Chief Executive Officer of Formica Corporation since May 1998. From 1995 to
1997, Mr. Langone served as President and Chief Operating Officer of Interbuild
International, Inc., which participates in and manages leveraged buyouts and
provides operational management and general consulting services. Mr. Langone is
a director of United Retail Group and Summit Bank. From 1989 to 1995, Mr.
Langone served as Chairman, President and Chief Executive Officer of Formica
Corporation.
D.P. "PAT" PAYNE, DIRECTOR: Mr. Payne has been Senior Vice President for
WMI since 1995, and has been a director of the Company since February 1998.
Prior to serving in his current position with WMI, Mr. Payne served as
President and Chief Executive Officer of Chemical Waste Management, Inc. from
1991 to 1995.
KARL R. WYSS, DIRECTOR: Mr. Wyss is a Managing Director of DLJMB, Inc.
and has been a director of the Company since the Acquisition. Prior to joining
DLJMB, Inc. in 1993, he was Chairman and Chief Executive Officer of Lear
Siegler Inc., where he served as President and Chief Operating Officer from
1989 to 1993. He serves on the boards of CommVault Systems, Inc., EZ Buy & EZ
Sell Recycler Corp., Localiza Rent A Car S.A., OSF, Inc., Mallory Limitada,
Pharmaceutical Fine Chemicals, S.A. and Von Hoffman Press, Inc.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive cash compensation for serving as
directors; however, in March 1997, pursuant to Holdings' Stock Option Plan for
Outside Directors, directors who were not employees of Holdings, the Company or
any of their institutional shareholders, were each awarded options (the
"Director Options") to purchase 40,000 shares of the common stock of Holdings,
which options will vest in March 1999.
COMPENSATION COMMITTEE AND INSIDER INTERLOCKS
Compensation of the Company's management is determined by a committee
comprised of Messrs. Jaffe, Monter and Wyss. Mr. Monter is the Chief Executive
Officer and President of the Company. In March 1997, Mr. Monter purchased
386,406 newly-issued shares of the common stock of Holdings and
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<PAGE>
17,500 newly-issued shares of preferred stock for an aggregate purchase price
of $823,905. In connection with such purchase, Holdings extended Mr. Monter a
recourse loan of $167,000, which matures in March 2002 (subject to prepayment
in the event any shares are disposed of prior to such time) and bears interest
at a rate of 7.03% per annum. The loan is secured by a pledge of the shares
purchased.
Messrs. Jaffe and Wyss are Managing Directors of DLJMB, Inc., the general
partner of DLJMB. Pursuant to a shareholders agreement dated as of September
30, 1996 between DLJMB, Carlisle, Rust, the Company, Holdings and certain other
individuals, Holdings' board consists of seven members, five of whom are
nominated by DLJMB. In addition, the shareholders agreement provides for
certain rights of first refusal in favor of DLJMB, certain rights and
obligations on the part of shareholders to participate in transfers of shares
by DLJMB and preemptive rights for DLJMB under certain circumstances. The
shareholders agreement further provides that DLJMB has the right, subject to
certain conditions, to request that Holdings register securities that they own
under the Securities Act of 1933, as amended (the "Securities Act"), and to
participate in other registrations of Holdings' and the Company's securities,
in each case at Holdings' expense.
In addition, the shareholders agreement provides for certain advisory
relationships and the payment of management advisory fees. For five years after
the date of the agreement, Donaldson, Lufkin & Jenrette Securities Corporation
("DLJSC"), an affiliate of DLJMB, Inc., is engaged as the exclusive financial
and investment banking advisor for Holdings, on customary terms. Pursuant to
the shareholders agreement, DLJMB, Inc. receives an annual advisory fee of
$250,000 from Holdings. DLJSC received customary fees in connection with the
underwriting, purchase and placement of the 10 1/4% Senior Notes.
DLJ Capital, the Syndication Agent and a lender under the Bank Facility is
an affiliate of DLJMB. For a description of the Bank Facility, see "Description
of Bank Facility." The proceeds from the sale of the 10 1/4% Senior Notes were
used to repay indebtedness under the Bank Facility, $1.6 million of which was
owed to DLJ Capital on the date of the 10 1/4% Senior Note offering. In
connection with an amendment to the existing Bank Facility, the Company will
pay customary fees to DLJ Capital, as the Syndication Agent and as a lender
under the Bank Facility.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Chief
Executive Officer and the six other most highly paid executive officers for
services rendered in 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
ANNUAL COMPENSATION AWARDS
-------------------------------------- ------------
SECURITIES
UNDERLYING ALL
OTHER OPTIONS OTHER
SALARY BONUS COMPENSATION /SARS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) ($) (#) ($)
- -------------------------------- --------- --------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
John M. Monter 350,000 -- 8,400 437,500 828(1)
Chief Executive Officer
Herman Thibodeaux (2) 123,386 73,950 40,000 94,613(3)
James "Marty" McGee 124,845 121,200 -- 40,000 401(1)
Vice President,
Operations-Southeast Region
Ronald W. Moore (4) 121,145 109,077 -- 40,000 823(1)
Otto K. Knoll 139,870 73,942 1,938 40,000 1,600(1)
Vice President,
Operations-Western Region
Gerald B. Curran (5) 150,000 49,131 -- 40,000 1,442(1)
Raymond L. Edwards 135,000 30,000 -- 40,000 156(1)
Vice President, Administration
</TABLE>
34
<PAGE>
- ----------
(1) Represents the Company's matching 401(k) contributions.
(2) Mr. Thibodeaux retired from his position as Vice President, Marketing and
Sales on October 1, 1997.
(3) Payment pursuant to an employment agreement with WMI upon transition due
to disability status.
(4) Mr. Moore was reassigned from his position as Vice President, Operations
-- Central Region on December 1, 1997 to Division Manager of the
Company's Houston Division.
(5) Mr. Curran resigned from his position as Chief Financial Officer, Vice
President, Finance and Secretary on May 1, 1998. Mr. Curran's severance
agreement includes additional 1998 bonus payments of $32,946, one year at
continued base salary of $150,000 and one year's continued coverage under
the Company's medical and dental plan.
Stock Option Grants in Last Fiscal Year.
The following table sets forth certain information concerning grants of
stock options made to the persons named in the Summary Compensation Table
during the year ended December 31, 1997. Such grants are exercisable for shares
of the common stock of Holdings. No stock appreciation rights were granted.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (2)
---------------------------------------------------------------------- ------------------
% OF TOTAL
OPTIONS
NUMBER OF SECURITIES GRANTED TO EXERCISE OR
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE
NAME GRANTED (#) (1) FISCAL YEAR ($/SH) EXPIRATION DATE 5% ($) 10% ($)
- --------------------- ---------------------- -------------- ------------ ----------------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
John M. Monter 437,500 45.7 1.00 12/31/06 275,141 697,262
Herman Thibodeaux 40,000 4.2 1.00 12/31/06 25,156 63,750
James "Marty" McGee 40,000 4.2 1.00 12/31/06 25,156 63,750
Ronald W. Moore 40,000 4.2 1.00 12/31/06 25,156 63,750
Otto K. Knoll 40,000 4.2 1.00 12/31/06 25,156 63,750
Gerald B. Curran 40,000 4.2 1.00 12/31/06 25,156 63,750
Raymond L. Edwards 40,000 4.2 1.00 12/31/06 25,156 63,750
</TABLE>
- ----------
(1) Options vest in five equal annual installments beginning January 1, 1998
provided certain performance criteria are met. Unvested options are
subject to forfeiture, and any shares acquired upon exercise are subject
to repurchase rights of the Company, upon termination of employment. Upon
a change of control all unvested options will vest.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These
gains are based on assumed rates of stock price appreciation for the
underlying stock of 5% and 10% compounded annually from the date that the
respective options were granted through their expiration date. This table
does not take into account any appreciation in the price of the
underlying stock to date. Actual gains, if any, on stock option exercises
will depend on the future performance of the underlying stock and the
date at which the options are exercised.
35
<PAGE>
The following table summarizes option exercises during the last fiscal
year and the amount and value of options for persons named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, DECEMBER 31,
1997 (#) 1997 ($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- --------------------- ----------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
John M. Monter -- -- 0/437,500 0/0
Herman Thibodeaux -- -- 0/ 40,000 0/0
James "Marty" McGee -- -- 0/ 40,000 0/0
Ronald W. Moore -- -- 0/ 40,000 0/0
Otto K. Knoll -- -- 0/ 40,000 0/0
Gerald B. Curran -- -- 0/ 40,000 0/0
Raymond L. Edwards -- -- 0/ 40,000 0/0
</TABLE>
EMPLOYMENT AGREEMENT
Mr. Monter entered into an employment agreement with the Company on
October 1, 1996 pursuant to which he serves as President and Chief Executive
Officer. The employment agreement terminates on March 31, 1999 and provides for
an annual salary of not less than $350,000. Mr. Monter is also eligible for a
bonus of up to 100% of his base salary and an additional bonus of up to
$50,000. The Company undertakes to pay up to $1,500 of premiums annually under
Mr. Monter's life insurance policy. In the event the Company terminates Mr.
Monter's employment without cause or he becomes disabled, he is entitled to his
(i) base salary until the later to occur of the one year anniversary or March
31, 1999 (the "Severance Period"), (ii) continued coverage under the Company's
welfare benefits for up to the end of the Severance Period, and (iii) in the
case of termination without cause, a bonus equal to $12,500 multiplied by the
number of months remaining in the Severance Period. Any unvested stock options
held by Mr. Monter shall vest upon a change in control of the Company. As a
part of the employment agreement, Mr. Monter has entered into covenants
prohibiting him from competing with the Company, working for any of the
Company's competitors or using proprietary information for a twelve month
period following his departure from the Company.
36
<PAGE>
PRINCIPAL STOCKHOLDERS
All of the issued and outstanding common stock of the Company is held by
Holdings (and pledged to secure the Bank Facility). The following table sets
forth certain information with respect to the beneficial ownership of the
common stock of Holdings as of September 30, 1998 by (i) each person or group
known to the Company who beneficially owns more than five percent of the common
stock of Holdings and (ii) all directors and executive officers of the Company
as a group:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES OF OF
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK CLASS
- ----------------------------------------------------------------------- ------------------ -----------
<S> <C> <C>
DLJ Merchant Banking Partners, L.P. and related investors (1) ......... 8,762,500 65.5%
Rust Industrial Services, Inc.(2)
3003 Butterfield Road
Oakbrook, IL 60521 ................................................... 2,487,500 18.6%
Carlisle-Brand Investors, L.P.(3)
7777 Fay Avenue
La Jolla, California 92037 ........................................... 1,250,000(4) 9.3%
David L. Jaffe(5)
DLJ Merchant Banking Partners, Inc.
277 Park Avenue
New York, New York 10172 ............................................. -- --
Karl R. Wyss(5)
DLJ Merchant Banking Partners, Inc.
277 Park Avenue
New York, New York 10172 ............................................. -- --
James S. Carlisle(6)
Carlisle Enterprises
7777 Fay Avenue
La Jolla, California 92037 ........................................... -- --
All directors and officers as a group(5)(6) ........................... 788,876(7) 5.9%
</TABLE>
- ----------
(1) Consists of shares held by DLJMB, DLJ Offshore Partners, C.V.
("Offshore"), DLJ Merchant Banking Funding, Inc. ("Funding") and DLJ
International Partners, C.V. ("International"), each of which is
affiliated with DLJSC. See "Certain Relationships and Related
Transactions." The address of each of DLJMB and Funding is 277 Park
Avenue, New York, New York 10172. The address of each of Offshore and
International is John B. Gorsivaweg 6, Willemstad, Curacao, Netherland
Antilles. As a general partner of DLJMB, Offshore and International,
DLJMB, Inc. may be deemed to beneficially own indirectly all of the
shares held by DLJMB, Offshore and International, and as the parent of
each of DLJ Merchant Banking, Inc. and Funding, Donaldson, Lufkin &
Jenrette, Inc. may be deemed to beneficially own indirectly all of the
shares held by DLJMB, Offshore, International and Funding. Donaldson,
Lufkin & Jenrette, Inc. is a majority owned subsidiary of The Equitable
Companies Incorporated. The address of DLJ Merchant Banking, Inc. and
Donaldson, Lufkin & Jenrette, Inc. is 277 Park Avenue, New York, New York
10172.
(2) Rust Industrial is a wholly owned subsidiary of Rust International, Inc.
("RII") which is majority owned by WMI. As a result, WMI and RII may be
deemed to beneficially own all of the shares held by Rust Industrial. The
address for each of WMI and RII is 3003 Butterfield Road, Oakbrook,
Illinois 60521.
37
<PAGE>
(3) As the general partner of Carlisle, Carlisle Group, L.P. ("Carlisle
Group") may be deemed to beneficially own indirectly all of the shares
held by Carlisle. As the general partner of Carlisle Group, Carlisle
Enterprises, LLC may be deemed to beneficially own indirectly all of the
shares held by Carlisle. The address of Carlisle Group and Carlisle
Enterprises, LLC is 7777 Fay Avenue, La Jolla, California 92037.
(4) Does not include (i) 47,500 shares issuable upon the exercise of
currently exercisable options held by Carlisle Group and (ii) up to
871,250 shares issuable upon exercise of options held by Carlisle Group,
which options are not currently exercisable and will not be exercisable
within 60 days of the date of this prospectus.
(5) Messrs. Jaffe and Wyss are officers of DLJ Merchant Banking, Inc., an
affiliate of DLJMB and DLJSC. Share data shown for such individuals
excludes shares shown as held by DLJMB and related investors, as to which
such individuals disclaim beneficial ownership.
(6) Mr. Carlisle is a managing partner of Carlisle Enterprises, LLC, the sole
general partner of the sole general partner of Carlisle. Share data shown
for Mr. Carlisle excludes shares shown as held by Carlisle, as to which
Mr. Carlisle disclaims beneficial ownership.
(7) Does not include shares which may be purchased upon exercise of Director
Options or options awarded pursuant to the Company's employee benefit
plans, none of which are vested or will be exercisable within 60 days of
the date of the prospectus.
38
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the shareholders agreement dated as of September 30, 1996
between DLJMB, Carlisle, Rust, the Company, Holdings and certain other
individuals, Holdings' board consists of seven members: five nominated by
DLJMB, one nominated by Carlisle and one nominated by Rust Industrial. The
shareholders agreement also provides for certain restrictions on transfers of
Holdings' common stock. In addition, the shareholders agreement provides for
certain rights of first refusal in favor of DLJMB, certain rights and
obligations on the part of shareholders to participate in transfers of shares
by DLJMB and preemptive rights for DLJMB, Carlisle and Rust Industrial under
certain circumstances. The shareholders agreement further provides that DLJMB,
Carlisle and Rust Industrial each have the right, subject to certain
conditions, to request that Holdings register securities that they own under
the Securities Act and to participate in other registrations of Holdings' and
the Company's securities, in each case at Holdings' expense.
The shareholders agreement provides for certain advisory relationships and
the payment of management advisory fees. For five years after the date of the
agreement, DLJSC is engaged as the exclusive financial and investment banking
advisor for Holdings, on customary terms. Pursuant to the shareholders
agreement, DLJMB, Inc., the sole general partner of DLJMB, and Carlisle Group,
the sole general partner of Carlisle, each receive an annual advisory fee of
$250,000 from Holdings. DLJSC received customary fees in connection with the
underwriting, purchase and placement of the 10 1/4% Senior Notes.
Holdings has entered into a stock option agreement with Carlisle Group.
The stock option agreement gives Carlisle Group the right to acquire up to
918,750 shares of the common stock of Holdings for $1 per share. The exact
number of shares that may be acquired pursuant to the stock option agreement
depends upon Holdings' financial performance, equity financings by Holdings and
other factors. Carlisle Group's rights under the stock option agreement vest
progressively throughout the term of the agreement. The stock option agreement
will terminate on or, under certain circumstances, before September 30, 2006.
DLJ Capital, the Syndication Agent and a lender under the Bank Facility,
is an affiliate of DLJMB and DLJSC. For a description of the Bank Facility, see
"Description of Bank Facility." The proceeds from the sale of the 10 1/4% Senior
Notes were used to repay indebtedness under the Bank Facility, $1.6 million of
which was owed to DLJ Capital. In connection with an amendment to the existing
Bank Facility, the Company paid customary fees to DLJ Capital, as the
Syndication Agent and as a lender under the Bank Facility.
In connection with the Acquisition, WMI and the Company entered into a
transition services agreement. Pursuant to such agreement, WMI pays the Company
a fee for transition services of $725,000 quarterly. The first such payment was
made on December 31, 1996 and such payments will continue through September 30,
1999. In addition, the Company provides computer support to WMI Industrial
Cleaning Services, Inc., a subsidiary of WMI and receives a payment of $62,500
per month for such service.
In March 1997, certain officers and employees of the Company purchased a
total of 878,364 newly-issued shares of Holdings' common stock for $1 per share
and 42,832 shares of preferred stock for $25 per share. In connection with such
purchases, Holdings extended recourse loans to executive officers in the
aggregate amount of $341,000. Each of the loans matures in March 2002 (subject
to prepayment in the event any shares are disposed of prior to such time), with
interest payable at the rate of 7.03% per annum. The loans are secured by a
pledge of the shares purchased.
WMI provides trash hauling services to the Company for which the Company
paid WMI approximately $90,000 in 1997.
39
<PAGE>
DESCRIPTION OF BANK FACILITY
Although all of the material elements of the Credit Agreement are stated
herein, the following summary does not purport to be complete and is qualified
in its entirety by the Credit Agreement, copies of which may be obtained upon
request from the Company.
The Company entered into a credit agreement (the "Credit Agreement")
relating to the Bank Facility, with DLJ Capital, as Syndication Agent, and
BofA, as Administrative Agent, on September 30, 1996, which Credit Agreement
was amended on November 26, 1997 and February 20, 1998. As so amended, the Bank
Facility includes $60.0 million of senior secured credit facilities. A six-year
$30.0 million senior secured revolving loan facility is available to the
Company for working capital and other general corporate purposes. Borrowings
under the revolving loan facility are governed by a borrowing base equal to 85%
of eligible accounts receivable. A $15.0 million sub-facility of the revolving
loan facility is available for the issuance of letters of credit. The issuance
of letters of credit constitutes usage under the revolving loan facility and
reduces availability of the revolving loan facility dollar for dollar. Interest
on loans under the revolving loan facility is determined by a leverage-based
pricing grid. A commitment fee is payable on the unused portion of the
revolving loan facility at a rate also determined by a leverage-based pricing
grid.
In addition, the Bank Facility, as amended, includes a term loan facility.
The term loan facility was fully drawn at the closing of the Bank Facility (the
"Bank Closing") in the amount of $160.0 million to partially fund the
Acquisition. $130.0 million of such term loan facility was repaid with the
proceeds of the 10 1/4% Senior Note offering, leaving $30.0 million of loans
outstanding under the term loan facility. Interest on loans under the term loan
facility is determined by a leverage-based pricing grid. The portion of the
term loan facility that remained outstanding after such repayment had an
average life of 3.05 years at the date of the Bank Closing. The term loan
facility amortizes quarterly in amounts aggregating $1.5 million in 1998, $5.0
million in 1999, $6.0 million in 2000, $8.5 million in 2001 and $9.0 million in
2002, with a final maturity of September 30, 2002.
Loans outstanding under the Bank Facility are required to be prepaid from
100% of the net proceeds from debt issuances, 100% of the net proceeds from
certain asset sales that are not reinvested in the Company's business within a
specified period, 50% of the net proceeds from certain issuances of equity
securities and 75% of the Company's consolidated annual excess cash flow.
The Bank Facility is secured by (i) a first priority perfected lien on all
material tangible and intangible assets of the Company and its U.S.
subsidiaries, (ii) a first priority pledge of all notes evidencing intercompany
indebtedness owed to the Company or its U.S. subsidiaries and (iii) a first
priority pledge of 100% of the capital stock of the Company and all of its U.S.
subsidiaries and 65% of the capital stock of all of its non-U.S. subsidiaries.
The Bank Facility is also supported by guarantees from Holdings and all U.S.
subsidiaries of the Company.
The Credit Agreement contains the following financial covenants, which are
computed quarterly on a rolling four-quarter basis: (i) maximum leverage
(ranging from 6.10:1 as of September 30, 1998, decreasing thereafter to 4.50:1
on December 31, 2001 and thereafter); (ii) minimum interest coverage (ranging
from 1.70:1 as of September 30, 1998, increasing thereafter up to 2.10:1 at
December 31, 2001 and thereafter); (iii) minimum fixed charge coverage (ranging
from 0.90:1 as of September 30, 1998, increasing thereafter up to 1.10:1 at
December 31, 2001 and thereafter); (iv) minimum net worth (equal to $20 million
plus an amount equal to 50% of cumulative positive net income from January 1,
1998 to the end of the fiscal quarter most recently ended on or prior to such
date of determination); and (v) maximum capital expenditures (not in excess of
$10.0 million in any fiscal year, with the ability to carry forward up to $5.0
million to the next succeeding fiscal year to the extent the amount of capital
expenditures permitted to be made in any fiscal year exceeds the amount
actually made in such fiscal year, in addition to an aggregate amount not in
excess of $5.0 million in any fiscal year used to acquire industrial
scaffolding, with the ability to carry forward up to $2.5 million to the next
succeeding fiscal year to the extent the amount of capital expenditures
permitted to be made in any fiscal year to acquire industrial scaffolding
exceeds the amount actually made in such fiscal year). In addition, the Credit
Agreement restricts the Company's ability, among other things, to (i) incur
debt,
40
<PAGE>
sale-leasebacks and contingent liabilities; (ii) pay dividends, make
distributions or repurchase stock; (iii) incur liens; (iv) sell assets other
than in the ordinary course of business; (v) make investments or acquisitions;
(vi) consummate mergers, consolidations or combinations; or (vii) engage in
transactions with affiliates. As of December 31, 1997 the Company was not in
compliance with certain covenants under the Credit Agreement. The Company
sought and obtained waivers of such non-compliance from the lenders under the
Bank Facility. In addition, on November 20, 1998, the Company sought and
obtained the consent of the lenders under the Bank Facility to treat certain
capital expenditures incurred in connection with two particular acquisitions as
investments rather than as capital expenditures.
The Company obtained an amendment to the Bank Facility which became
effective upon the closing of the 10 1/4% Senior Note offering, substantially
all of the net proceeds of which 10 1/4% Senior Note offering were used to repay
loans outstanding under the Bank Facility. Under such amendment, the terms and
required levels under the financial covenants were reset at levels that are
more consistent with the Company's capital structure following the 10 1/4%
Senior Note offering and its current and expected financial performance and
certain other amendments to the Bank Facility were effected.
41
<PAGE>
SELLING HOLDERS
The preferred stock was originally issued and sold on September 30, 1996
in transactions not registered under the Securities Act, in reliance upon the
exemption provided in Section 4(2) of the Securities Act. On October 15, 1998,
the Company commenced an offer to exchange (the "Exchange Offer") the 1,042,460
shares of preferred stock then outstanding for shares of preferred stock of the
Company substantially identical in form and terms except that the shares
offered were registered under the Securities Act. Because DLJSC is an affiliate
of the Company, DLJSC was unable to participate in the Exchange Offer.
Accordingly, the 209,000 shares of preferred stock currently held by DLJSC and
described in this prospectus may not be reoffered, resold or otherwise pledged,
hypothecated or transferred in the United States unless so registered or unless
an applicable exemption from the registration requirements of the Securities
Act is available. Such preferred stock may be offered and sold from time to
time by the selling holders pursuant to this prospectus. The registration
statement of which this prospectus is a part has been filed with the Securities
Exchange Commission (the "Commission").
The registration statement has been filed pursuant to Rule 415 under the
Securities Act to afford the holders of the securities offered hereby the
opportunity to sell such securities in a public transaction rather than
pursuant to an exemption from the registration and prospectus delivery
requirements of the Securities Act. In order for a selling holder other than
DLJSC to avail himself of that opportunity and to become a Selling Holder
hereunder, such holder must notify the Company in writing of his intention to
sell securities and request the Company to file a supplement to this prospectus
or an amendment to the registration statement, if required, identifying such
holder as a selling holder and disclosing such other information concerning the
selling holder and the securities to be sold as may then be required by the
Securities Act and the rules of the Commission. No offer or sale pursuant to
this prospectus may be made by any holder until such a request has been made
and until any such supplement has been filed or any such amendment has become
effective. DLJSC and the holders of securities who have made such a request and
as to which any such required supplement or amendment has been filed or become
effective are referred to herein as "Selling Holders."
As of the date of this prospectus, no holder of securities other than
DLJSC has made such a request and, accordingly, no Selling Holders other than
DLJSC are named herein. The Company will from time to time supplement or amend
this prospectus to reflect the required information concerning any Selling
Holder.
REGISTRATION RIGHTS AGREEMENT
The registration statement of which this prospectus is a part, was filed
with the Commission by the Company pursuant to a registration rights agreement
dated March 2, 1998 between the Company and DLJSC. Pursuant to the registration
rights agreement, the Company is obligated to use its best efforts to keep the
registration statement continuously effective, supplemented, amended and
current for as long as DLJSC is deemed to be an affiliate of the Company but in
any event, until the first to occur of (i) the sale of all of the preferred
stock covered by the registration statement and
(ii) March 2, 2000.
42
<PAGE>
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue 1,250,000 shares of the 14.5% Senior
Exchangeable Preferred Stock due 2008, par value $0.01, of which 1,042,460 are
issued and outstanding. The following is a summary of the principal terms of
the preferred stock, which is governed by the Certificate of Designations,
Preferences and Rights relating thereto.
RANKING AND DIVIDENDS
Each share of preferred stock had an initial liquidation preference of
$25.00 per share, plus accrued and unpaid dividends. The preferred stock ranks
senior to all classes or series of equity securities of the Company. The
holders of the preferred stock are entitled to receive dividends, when, as and
if declared by the board of directors of the Company at the rate of 14.5% per
annum on the liquidation value. Dividends on the preferred stock accrete to the
liquidation value of the preferred stock until the later of (i) September 30,
2001 (the "Fifth Anniversary") and (ii) the first date on which dividends on
the preferred stock would be permitted to be paid in cash pursuant to the terms
of the Company's then outstanding indebtedness (such later date, the "Cash Pay
Date"). The Company is restricted from declaring dividends on other securities
and from redeeming or repurchasing certain junior securities unless full
cumulative dividends have been paid on the preferred stock.
OPTIONAL REDEMPTION
In the event that Holdings or any affiliate of the Company sells equity
securities and contributes the proceeds to the Company (an "Equity Offering")
prior to September 30, 1999, the Company may, at its option, redeem not less
than all of the outstanding preferred stock at a price of 114.5% of the
liquidation value; provided that the aggregate redemption price of all the
outstanding shares of preferred stock does not exceed the net proceeds received
by the Company from such Equity Offering. After September 30, 2001, the Company
may, at its option, redeem any or all outstanding shares of preferred stock at
the applicable redemption price (expressed as a percentage of liquidation
value) as set forth below during the twelve month periods beginning September
30 of the years shown below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ----------------------------------------- -----------
<S> <C>
2001 .................................. 107.25%
2002 .................................. 104.83%
2003 .................................. 102.42%
2004 and thereafter ................... 100.00%
</TABLE>
MANDATORY REDEMPTION
In the event of a Change of Control (as defined in the Certificate of
Designations, Preferences and Rights governing the preferred stock), the
Company is required to make an offer to redeem all shares of preferred stock at
a redemption price equal to 101% of the liquidation value.
In addition, the Company is required to redeem all shares of preferred
stock on March 31, 2008 at a price equal to the liquidation value at such date.
There is no restriction on the repurchase or redemption of shares of preferred
stock by the Company while there is an arrearage in the payment of dividends.
VOTING RIGHTS
The holders of preferred stock voting as a class are entitled to elect two
directors if and whenever (i) six consecutive quarterly dividends after the
Fifth Anniversary have not been paid in full, (ii) the Company has not redeemed
the preferred stock on March 31, 2008, (iii) the Company has not offered to
redeem the preferred stock in a timely manner following a change of control
event, (iv) dividends have been paid on other securities or junior securities
have been redeemed or repurchased while full cumulative dividends have not been
paid on the preferred stock or (v) the Company's Certificate of Incorporation
has been amended in a manner adverse to the holders of preferred stock without
such holder's consent.
43
<PAGE>
DESCRIPTION OF EXCHANGE DEBENTURES
Subject to certain conditions, the Company may, at its option, issue 14.5%
Junior Subordinated Exchange Debentures due 2008 in exchange for any or all
outstanding shares of preferred stock, at an exchange ratio of $1.00 of
liquidation value of preferred stock for $1.00 principal amount of exchange
debentures. On and after the date of any exchange, dividends will cease to
accrue on the preferred stock and all rights of holders of the preferred stock
shall cease.
The exchange debentures, if issued, will be issued pursuant to an
indenture (the "Indenture") to be entered into between the Company and a
trustee selected by the Company (together with any successor trustee, the
"Trustee") and will be limited in amount to the aggregate liquidation value of
the preferred stock outstanding at the time of the exchange. The terms of the
exchange debentures include those set forth in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act as in effect on
the date of the Indenture. The exchange debentures are subject to all such
terms. Copies of the proposed form of the Indenture can be obtained from the
Company, upon request. The following description of certain provisions of the
Indenture and the exchange debentures is intended as a summary only and is
qualified in its entirety by reference to the Indenture and the exchange
debentures, including the definitions in those documents of certain terms.
Whenever particular articles, sections or defined terms of the exchange
debentures or the Indenture are referred to, it is intended that those
articles, sections or defined terms are to be incorporated by reference into
this Prospectus.
MATURITY AND INTEREST
The exchange debentures will mature on March 31, 2008. The exchange
debentures will pay interest at an effective annual rate of 14.5%, payable
quarterly. Prior to the Cash Pay Date, interest will be payable in additional
exchange debentures.
RANKING
The exchange debentures will be general unsecured obligations of the
Company and will be subordinated in right of payment to the prior payment of
all indebtedness of the Company that is not expressly made pari passu with or
junior to the exchange debentures ("Senior Indebtedness").
OPTIONAL REDEMPTION
In the event of an Equity Offering prior to September 30, 1999, the
Company would be allowed, at its option, to redeem any or all outstanding
exchange debentures, at a purchase price equal to 114.5% of the principal
amount thereof, plus accrued and unpaid interest thereon. After September 30,
2001, the Company would be allowed, at its option, to redeem any or all
outstanding exchange debentures at the applicable redemption price (expressed
as a percentage of principal amount) as set forth below during the twelve month
periods beginning September 30 of the years shown below, plus in each case
accrued and unpaid interest, if any:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001 .................................. 107.25%
2002 .................................. 104.83%
2003 .................................. 102.42%
2004 and thereafter ................... 100.00%
</TABLE>
CHANGE OF CONTROL
In the event of certain asset sales or specific kinds of changes in
control, the Company would be required to make an offer to redeem all of the
exchange debentures at a redemption price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest thereon.
44
<PAGE>
CERTAIN COVENANTS
The Indenture will contain covenants that, among other things, would limit
the ability of the Company to make certain payments and to merge, consolidate
or sell substantially all of its assets.
MERGER, SALE OR CONSOLIDATION
Without limitation of the provisions of the Indenture described above
regarding a Change of Control, the Company may merge, consolidate or transfer
all or substantially all of its properties and assets as an entirety and the
Company may permit any person to consolidate with or merge into the Company or
transfer all or substantially all of its properties and assets as an entirety
to the Company; provided that, among other things, (a) the successor person is
the Company or another corporation organized and existing under the laws of the
United States, any state thereof or the District of Columbia that assumes the
Company's obligations on the exchange debentures and under the Indenture and
(b) immediately before and immediately after giving effect to such transaction,
no Event of Default shall have occurred and be continuing.
EVENTS OF DEFAULT
The following shall constitute Events of Default with respect to the
exchange debentures: (i) failure to pay the principal of or premium, if any, on
any exchange debenture when such amounts become due and payable at maturity,
upon acceleration or otherwise, whether or not such payment is prohibited by the
subordination provisions of the Indenture; (ii) failure to pay interest on the
exchange debentures when due, whether or not such payment is prohibited by the
subordination provisions of the Indenture, and such failure continues for a
15-day period; (iii) a default in the observance or performance of any other
covenant or agreement of the Company in the exchange debentures or the
Indenture that continues for the period and after the notice specified below;
(iv) an event of default shall have occurred and be continuing under any other
evidence of indebtedness of the Company or any of its subsidiaries, whether
such indebtedness now exists or is created hereafter, which event of default
results in the acceleration of such indebtedness which, together with any such
other indebtedness so accelerated, aggregates more than $15 million and such
acceleration is not rescinded or indebtedness is not paid or discharged for the
period and after the notice specified below; (v) any final judgment or
judgments for payment of money in excess of $15 million in the aggregate shall
be rendered against the Company or a subsidiary and shall remain unstayed,
unsatisfied or undischarged for the period and after the notice specified
below; and (vi) certain events of bankruptcy, insolvency or reorganization. The
Company is required to deliver to the Trustee within 120 days after the end of
each fiscal year of the Company an officer's certificate stating whether or not
the signatories know of any default by the Company under the Indenture and the
exchange debentures and, if any default exists, describing such default.
A default under clause (iii), (iv) or (v) above is not an Event of Default
until the Trustee or the holders of at least 25% in principal amount of the
then outstanding exchange debentures notify the Company of the default and the
Company does not cure the default within 30 days after receipt of the notice.
The notice must specify the default, demand that it be remedied and state that
the notice is a "Notice of Default." If the holders of 25% or more in principal
amount of the then outstanding exchange debentures request the Trustee to give
such notice on their behalf, the Trustee shall do so.
In case an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency or reorganization) shall have occurred and be
continuing, the Trustee, by notice to the Company, or the holders of 25% or
more of the principal amount of the exchange debentures then outstanding, by
notice to the Company and the Trustee, may declare the principal amount of the
exchange debentures, plus accrued interest, if any, to be immediately due and
payable. In case an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization shall occur, such amounts shall be due
and payable without any declaration or any act on the part of the Trustee or
the holders of the exchange debentures. Such declaration of acceleration may be
rescinded and past defaults may be waived by the holders of a majority of the
principal amount of the exchange
45
<PAGE>
debentures then outstanding upon conditions provided in the Indenture, except a
default in the payment of principal, or interest on any exchange debenture or
in respect of a covenant or provision of the Indenture which cannot be modified
or amended without the consent of the holder of each exchange debenture. Except
to enforce the right to receive payment when due of principal, premium, if any,
or interest, if any, no holder of an exchange debenture may institute any
proceeding with respect to the Indenture or for any remedy thereunder unless
such holder has previously given to the Trustee written notice of a continuing
Event of Default and unless the holders of 25% or more of the principal amount
of the exchange debentures then outstanding have requested the Trustee to
institute proceedings in respect of such Event of Default and have offered the
Trustee reasonable indemnity against loss, liability and expense to be thereby
incurred, the Trustee has failed so to act for 60 days after receipt of the
same and during such 60-day period the holders of a majority of the principal
amount of the exchange debentures then outstanding have not given the Trustee a
direction inconsistent with the request. Subject to certain restrictions, the
holders of a majority in principal amount of the exchange debentures then
outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. The Trustee, however, may refuse
to follow any direction that conflicts with law or the Indenture, that is
unduly prejudicial to the rights of any holder of an exchange debenture or that
would involve the Trustee in personal liability, and the Trustee may take any
other action deemed proper by the Trustee which is not inconsistent with such
direction.
MODIFICATIONS AND WAIVERS OF THE INDENTURE
Supplemental indentures modifying or amending the Indenture may be made by
the Company and the Trustee with the consent of the holders of not less than a
majority in aggregate principal amount of the then outstanding exchange
debentures (or, prior to the issuance of the exchange debentures, with the
consent of the holders of not less than a majority of the number of then
outstanding shares of preferred stock); provided, however, that no such
modification or amendment may, without the consent of all of the holders of the
exchange debentures then outstanding (or, prior to the issuance of the exchange
debentures, without the consent of all of the holders of the then outstanding
shares of preferred stock), (i) extend the fixed maturity of any exchange
debenture, reduce the rate or extend the time of payment of interest on any
exchange debenture, reduce the principal amount, or premium, if any, on any
exchange debenture, alter the redemption or mandatory repurchase provisions or
adversely affect the repurchase rights with respect to any exchange debenture,
impair the right of a holder to institute suit for payment thereof, change the
currency in which the exchange debentures are payable or (ii) reduce the
percentage of exchange debentures (or the number of shares of preferred stock),
the consent of the holders of which is required for any modification or waiver.
The Indenture may not be amended to alter the subordination of any outstanding
exchange debentures without consent of each holder of Senior Indebtedness then
outstanding that would be adversely affected thereby. Without the consent of
any holders of the exchange debentures, the Company and the Trustee may amend
or supplement the exchange debentures or the Indenture to cure any ambiguity,
defect or inconsistency, to provide for uncertificated exchange debentures in
addition to or in place of certificated exchange debentures, to provide for the
assumption of the Company's obligations to holders of the exchange debentures
in the case of a merger or consolidation or transfer of all or substantially
all of the Company's assets, or to make any change that does not materially
adversely affect the rights of any holder of the exchange debentures.
The holders of a majority in aggregate principal amount of outstanding
exchange debentures may waive any past default under the Indenture, except a
default in the payment of principal, premium, if any, interest, if any, or
default with respect to certain covenants under the Indenture.
The consent of the holders of the exchange debentures is not necessary
under the Indenture to approve the particular form of any proposed amendment.
It is sufficient if such consent approves the substance of the proposed
amendment. After the amendment under the Indenture becomes effective,
46
<PAGE>
the Company is required to mail to holders of the exchange debentures a notice
briefly describing such amendment. However, the failure to give such notice to
all holders of the exchange debentures, or any defect therein, will not impair
or affect the validity of the amendment.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, agent, manager,
stockholder or other affiliate, as such, of the Company shall have any
liability for any obligations of the Company under the exchange debentures or
the Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of the exchange debentures by
accepting an exchange debenture waives and releases all such liability.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will provide that the Company may terminate its obligations
under the Indenture at any time by delivering all outstanding exchange
debentures to the Trustee for cancellation and paying all sums required to be
paid pursuant to the terms of the Indenture. In addition, the Company will be
permitted to terminate all of its obligations under the Indenture by
irrevocably depositing with the Trustee money or U.S. government obligations
sufficient to pay principal of and interest, if any, on the exchange debentures
to maturity or redemption and all other sums payable pursuant to the terms of
the Indenture, after complying with certain other procedures set forth in the
Indenture.
TRANSFER AND EXCHANGE
A holder may transfer or exchange the exchange debentures in accordance
with the Indenture. The Company may require a holder to, among other things,
furnish appropriate endorsements and transfer documents and pay any taxes and
fees required by law or permitted by the Indenture. The Company is not required
to transfer or exchange any exchange debentures selected for redemption. Also,
the Company is not required to transfer or exchange any Debenture for a period
of 15 days before a selection of exchange debentures to be redeemed.
The registered holder of an exchange debenture may be treated as the owner
of it for all purposes.
DELIVERY AND FORM
The exchange debentures to be issued upon exchange of the preferred stock
as set forth herein will be issued in registered form. Transfers of exchange
debentures must be made in accordance with the terms of the Indenture.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received in respect of any such
claim as security or otherwise. Subject to the Trust Indenture Act, the Trustee
will be permitted to engage in other transactions; however, if it acquires any
conflicting interest, as described in the Trust Indenture Act, it must
eliminate such conflict or resign.
47
<PAGE>
DESCRIPTION OF NOTES
The Company issued $130.0 million aggregate principal amount of 10 1/4%
Senior Notes due 2008 under an indenture, dated as of February 25, 1998 by and
between the Company and U.S. Trust Company of Texas, N.A., as trustee under the
indenture. The offering of the notes generated net proceeds of approximately
$125.6 million.
The notes represent general senior unsecured obligations of the Company
and rank pari passu with all existing and future senior unsecured indebtedness
and other obligations of the Company. The notes are effectively subordinated to
all existing and future liabilities of the Company's subsidiaries, including
trade payables. In addition, the notes are effectively subordinated to existing
and future senior secured indebtedness, including the Bank Facility, which is
secured by a pledge of substantially all of the assets of the Company and its
subsidiaries and is also guaranteed by the Company's U.S. subsidiaries.
The notes mature on February 15, 2008, and bear interest at 10 1/4% per
annum from February 25, 1998 (the "Note Issue Date") or from the most recent
interest payment date to which interest has been paid or provided for. Interest
on the notes is payable semi-annually in arrears on February 15 and August 15
of each year, commencing August 15, 1998.
Except as provided in the next paragraph, the notes are not redeemable at
the option of the Company prior to February 15, 2003. On or after such date,
the notes will be redeemable at the option of the Company, in whole at any time
or in part from time to time, at the following prices (expressed in percentages
of the principal amount), if redeemed during the 12 months beginning February
15 of the years indicated below, in each case together with interest accrued to
the redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
any:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003 ......................... 105.125%
2004 ......................... 103.417%
2005 ......................... 101.708%
2006 and thereafter .......... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time during the first 36 months
after the Note Issue Date, the Company may, at its option, redeem up to a
maximum of 35% of the aggregate principal amount of the notes with the net cash
proceeds of one or more offerings of capital stock of the Company at a
redemption price equal to 110 1/4% of the principal amount thereof, plus accrued
and unpaid interest thereon to the redemption date, if any; provided, that each
such redemption shall occur within 90 days of the closing of such offering.
Upon the occurrence of a Change of Control (as defined in the indenture
governing the notes), each holder will have the right to require the Company to
repurchase all of such holder's notes in whole or in part at a purchase price
in cash equal to 101% of the aggregate principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the repurchase date.
The indenture governing the notes contains covenants limiting the ability
of the Company and its subsidiaries to, among other things, pay dividends or
make certain other payments, make certain investments, incur additional
indebtedness, permit liens, incur dividend and other payment restrictions
affecting its subsidiaries, enter into consolidation, merger, conveyance, lease
or transfer transactions, make asset sales, enter into transactions with its
affiliates and engage in unrelated lines of business. In addition, the
indenture imposes restrictions on the ability of the Company's subsidiaries to
issue guarantees.
48
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
PROSPECTIVE PURCHASERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE TAX CONSEQUENCES OF ACQUIRING, HOLDING OR DISPOSING OF
THE PREFERRED STOCK IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AND THE
CONSEQUENCES UNDER FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds from the sale of any
preferred stock or exchange debentures issuable in exchange for the preferred
stock pursuant to this prospectus, all of which will be sold by Selling
Holders. Such securities as offered hereby may be sold from time to time to
purchasers directly by the Selling Holders; alternatively, the Selling Holders
may from time to time offer such securities to and through underwriters,
broker/dealers or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Holders or
the purchasers of such securities for whom they may act as agents. The Selling
Holders and any underwriters, broker/dealers or agents that participate in the
distribution of such securities may be deemed to be "underwriters" within the
meaning of the Securities Act, and any profit on the sale of such securities by
them and any discounts, commissions or other compensation received by any such
underwriter, broker/dealer or agent may be deemed to be underwriting discounts
and commissions under the Securities Act.
The preferred stock, and the exchange debentures issuable in exchange for
the preferred stock, offered hereby may be sold from time to time in one or
more transactions at fixed prices, at prevailing market prices at the time of
sale, at varying prices determined at the time of sale or at negotiated prices.
The sale of such securities may be effected in transactions (which may involve
crosses or block transactions) (i) on any national securities exchange or
quotation service on which such securities may be listed or quoted at the time
of sale, (ii) in the over-the-counter market, (iii) in transactions otherwise
than on such exchanges or in the over-the-counter market, or (iv) through the
writing of options. At the time a particular offering of such securities is
made, a prospectus supplement, if required, will be distributed which will set
forth the aggregate amount and type of securities being offered and the terms
of the offering, including the name or names of any underwriters,
broker/dealers or agents, any discounts, commissions and other terms
constituting compensation from the Selling Holders and any discounts,
commissions or concessions allowed or reallowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if
applicable, the preferred stock, and the exchange debentures issuable in
exchange for the preferred stock, will be offered or sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
jurisdictions, such securities may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or any exemption from
registration or qualification is available and is complied with.
Pursuant to the registration rights agreement dated March 2, 1998 between
DLJSC and the Company, all expenses of the registration of the preferred stock
and the exchange debentures will be paid by the Company, including, without
limitation, Commission filing fees and expenses of compliance with state
securities or "blue sky" laws; provided, however, that the Selling Holders will
pay all underwriting discounts and selling commissions, if any. The Company
will indemnify the Selling Holders against certain civil liabilities, including
certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith.
LEGAL MATTERS
The validity of the preferred stock offered hereby was passed upon for the
Company by Davis Polk & Wardwell.
49
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of Brand as of December 31, 1996 and
1997 and for the three months ended December 31, 1996 and the year ended
December 31, 1997 and the consolidated statements of operations, stockholder's
equity and cash flows of Rust for the year ended December 31, 1995 and the nine
months ended September 30, 1996 included in this prospectus, have been audited
by Arthur Andersen LLP, independent public accountants, as stated in their
reports appearing herein.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Commission. You may also read and copy any document we file at the Commission's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for more information about the public reference
room and their copy charges. The Commission maintains a web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission.
We have filed a registration statement on Form S-1 (of which this
prospectus is a part) with the Commission under the Securities Act with respect
to the preferred stock and the exchange debentures. This prospectus does not
contain all the information set forth in the registration statement, certain
portions of which have been omitted as permitted by the rules and regulations
of the Commission. You should review our registration statement and our
exhibits.
50
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS FOR RUST SCAFFOLD SERVICES INC. AND SUBSIDIARIES:
Report of Independent Public Accountants ............................................ F-2
Consolidated Statements of Operations for the Year Ended December 31, 1995 and
the Nine Months Ended September 30, 1996 ........................................... F-3
Consolidated Statements of Cash Flows for the Year Ended December 31, 1995 and
the Nine Months Ended September 30, 1996 ........................................... F-4
Consolidated Statements of Stockholder's Equity for the Year Ended December 31,
1995 and the Nine Months Ended September 30, 1996 .................................. F-5
Notes to Consolidated Financial Statements .......................................... F-6
CONSOLIDATED FINANCIAL STATEMENTS FOR BRAND SCAFFOLD SERVICES, INC. AND SUBSIDIARIES:
Report of Independent Public Accountants ............................................ F-10
Consolidated Statements of Operations for the Three Months Ended December 31,
1996, the Year Ended December 31, 1997, and the Nine Months Ended September 30,
1997 (unaudited) and 1998 (unaudited) .............................................. F-11
Consolidated Balance Sheets as of December 31, 1996, 1997, and September 30, 1998
(unaudited) ........................................................................ F-12
Consolidated Statements of Cash Flows for the Three Months Ended December 31,
1996, the Year Ended December 31, 1997, and the Nine Months Ended September 30,
1997 (unaudited) and 1998 (unaudited) .............................................. F-14
Consolidated Statements of Stockholder's Equity (Deficit) for the Three Months
Ended December 31, 1996, the Year Ended December 31, 1997, and the Nine
Months Ended September 30, 1998 (unaudited) ........................................ F-15
Notes to Consolidated Financial Statements .......................................... F-16
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Rust Scaffold Services Inc.:
We have audited the accompanying consolidated statements of operations,
stockholder's equity and cash flows of Rust Scaffold Services Inc. and
Subsidiaries (a Delaware corporation) for the year ended December 31, 1995 and
the nine months ended September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Rust
Scaffold Services, Inc. and subsidiaries for the year ended December 31, 1995,
and the nine months ended September 30, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 19, 1997
F-2
<PAGE>
RUST SCAFFOLD SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000'S OMITTED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------- -------------------
<S> <C> <C>
Revenue ..................................... $193,829 $124,769
Operating expenses .......................... 138,968 89,073
-------- --------
Gross profit ................................ 54,861 35,696
Selling and administrative expenses ......... 25,807 15,825
-------- --------
Operating income ......................... 29,054 19,871
Interest expense ............................ 9,444 7,872
Interest income ............................. (1,012) (482)
Other expense, net .......................... 853 708
-------- --------
Pretax income ............................ 19,769 11,773
Provision for income taxes .................. 8,300 4,813
-------- --------
Net income .................................. $ 11,469 $ 6,960
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-3
<PAGE>
RUST SCAFFOLD SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 11,469 $ 6,960
Adjustments to reconcile net income to net cash provided by
operating activities --
Deferred tax provision .................................. 4,348 2,427
Depreciation and amortization ........................... 8,602 6,669
Changes in operating assets and liabilities --
Trade accounts receivable, net ......................... 3,979 4,416
Costs and estimated earnings in excess of billings on
uncompleted contracts ................................ (1,398) 1,701
Notes receivable ....................................... 2,306 4,797
Scaffolding ............................................ 4,484 2,846
Accounts payable ....................................... 660 (727)
Accrued expenses ....................................... 1,795 2,173
Billings in excess of costs and estimated earnings on
uncompleted contracts ................................ 261 (504)
Other .................................................. (919) (2,280)
--------- ---------
Net cash provided by operating activities ............ 35,587 28,478
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ....................... (13,550) (5,770)
Proceeds from sales of property and equipment other than
scaffolding ............................................. 101 64
--------- ---------
Net cash used for investing activities ............... (13,449) (5,706)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to Rust Industrial Services Inc., net ........... (20,440) (26,962)
--------- ---------
Net cash used for financing activities ............... (20,440) (26,962)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ............................................... 1,698 (4,190)
CASH AND CASH EQUIVALENTS, beginning of year ............... 2,618 4,316
--------- ---------
CASH AND CASH EQUIVALENTS, end of year ..................... $ 4,316 $ 126
========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-4
<PAGE>
RUST SCAFFOLD SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(000'S OMITTED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------- -------------------
<S> <C> <C>
STOCKHOLDER'S EQUITY -- NET INVESTMENT BY RUST
INDUSTRIAL SERVICES INC., beginning balance ............ $ 150,005 $ 141,374
Comprehensive Income:
Net income ........................................... 11,469 6,960
Translation adjustment ............................... 340 26
--------- ---------
Comprehensive income ................................ 11,809 6,986
Payments to Rust Industrial Services Inc., net ......... (20,440) (26,962)
--------- ---------
STOCKHOLDER'S EQUITY -- NET INVESTMENT
BY RUST INDUSTRIAL SERVICES INC.,
ending balance ......................................... $ 141,374 $ 121,398
========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-5
<PAGE>
RUST SCAFFOLD SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000'S OMITTED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Rust Scaffold Services Inc. and its Subsidiaries ("RSS" or the "Company")
was a Delaware Corporation and was 100% owned by Rust Industrial Services, Inc.
("RIS") which is 100% owned by Rust International Inc. ("RII"). RII is a 60%
owned subsidiary of Waste Management Inc. ("WMI") and a 40% owned subsidiary of
Wheelabrator Technologies Inc. ("WTI"). On September 30, 1996, a company (the
"Newco") formed by DLJ Merchant Banking Partners, L.P. ("DLJMB") and on behalf
of DLJMB one or more of its affiliates or other related entities and Carlisle
Brand Investors, L.P. (the "Investors") acquired the outstanding securities of
the Company. The purchase price of the business was approximately $190 million,
which RIS was paid through a combination of cash, notes payable, preferred
stock and a 19.9% interest in Newco. Newco operates under the name DLJ Brand
Holdings, Inc. ("Holdings").
The Company provided scaffolding services primarily to refining, chemical,
petrochemical and utility industries, and to a lesser extent, pulp and paper
plants, nuclear facilities and general commercial clients. In most cases, the
Company's scaffolding services were provided in connection with periodic,
routine cleaning and maintenance of refineries, chemical plants and utilities,
and such services were also performed in connection with new construction
projects, plants, nuclear facilities and general commercial clients. The
Company provided personnel to erect, modify, move and dismantle scaffolding
structures, transport scaffolding to project sites and supervised and managed
such activities. In addition, the Company rents, and in some cases, sold
scaffolding. The Company maintained a substantial inventory of scaffolding at
several locations in various cities in the United States and Canada.
The Company's services were not rendered to or dependent on any single
customer within the industrial or commercial markets and therefore the Company
did not believe that a material concentration of credit risk existed, except
that one customer accounted for 14% and 21% of revenue for the year ended
December 31, 1995 and nine months ended September 30, 1996, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
As a result of the Company's relationship with WMI and RII, the financial
position and results of operations are not necessarily indicative of what they
would have been had these relationships not existed. Additionally, these
financial statements are not necessarily indicative of the future operations or
future financial position of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are prepared on a consolidated basis
and include those assets, liabilities, revenues and expenses directly
attributable to the operations of the Company. All significant intercompany
balances and transactions have been eliminated. The consolidated statements of
income reflect substantially all of the Company's costs associated with the
normal cost of business. These costs include direct expenses and certain
overhead and other expenses incurred by WMI and RII on the Company's behalf.
The expenses allocated to the Company and the method of allocation are further
discussed in Note 3, "Transactions with Affiliates."
F-6
<PAGE>
RUST SCAFFOLD SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenue Recognition
The Company recognizes contract revenue on the percentage-of-completion
basis with losses recognized in full when identified. Changes in project
performance and conditions, estimated profitability and final contract
settlements may result in future revisions to costs and income. Substantially
all of the Company's contracts are completed in less than six months. Other
revenues are recognized when the services are performed.
Foreign Currency
The assets and liabilities of the Company's foreign subsidiaries, Rust
Scaffold Services of Canada, LTD. and JLG Scaffolding, Inc., are translated at
the rates of exchange in effect on the balance sheet date while income
statement accounts are translated at the average exchange rate in effect during
the period. The resulting translation adjustments are charged or credited
directly to the Net Investment by Rust Industrial Services Inc. account, as
settlement of such intercompany balance is not planned or anticipated in the
foreseeable future.
Cash and Cash Equivalents
The Company considers all short-term deposits purchased with original
maturities of three months or less to be cash equivalents.
Property and Equipment
Property and equipment (including major repairs and improvements) are
capitalized and stated at cost. Items of an ordinary maintenance or repair
nature are charged directly to operations. The cost of property and equipment
is depreciated over the estimated useful lives on the straight-line method as
follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings ............................ 10 to 40 years
Scaffolding equipment ................ 7 to 25 years
Vehicles and other equipment ......... 3 to 20 years
Leasehold improvements ............... Life of the applicable lease or life of the
improvement, whichever is shorter
</TABLE>
Depreciation expense for the year ended December 31, 1995 and nine months
ended September 30, 1996 is $7,759 and $5,958, respectively.
Intangible Assets
Intangible assets relating to acquired businesses consist primarily of the
cost of purchased businesses in excess of the market value of net assets
acquired ("goodwill") and other covenants. Goodwill is amortized on a
straight-line basis over a period not exceeding 40 years. Amortization expense
related to intangibles in 1995 and the nine months ended September 30, 1996
amounted to approximately $843 and $711, respectively.
Impairment of Long-Lived Assets
During 1995, the Financial Accounting Standards Board (FASB) issued
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("FAS 121"). When
such events or circumstances indicate the carrying value of an asset may be
impaired, the Company recognizes an impairment loss.
Additionally, the Company measures the realizability of goodwill by the
ability of the acquired business to generate current and expected future
operating income in excess of annual amortization. If such realizability is in
doubt, an adjustment is made to reduce the carrying value of the goodwill.
F-7
<PAGE>
RUST SCAFFOLD SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Management has not recognized and does not believe any material impairment
losses exist for the year ended December 31, 1995 or the nine months ended
September 30, 1996.
Income Taxes
The Company is included in the federal income tax return of RII. The
deferred tax liabilities in the accompanying balance sheets are calculated as
if the Company filed a separate tax return. Income taxes are paid by RII on
behalf of the Company, and charges for taxes currently payable are allocated to
the Company.
Operating Leases
The Company leases various operating and office facilities for various
terms. Rents charged to costs and expenses in the statements of income amount
to approximately $1,435 for 1995 and $927 for the nine months ended
September 30, 1996.
3. TRANSACTIONS WITH AFFILIATES
WMI, RII and RIS have furnished the services of financial, administrative,
legal and certain other corporate staff personnel to the Company. Additionally,
RII provides certain retirement and post-retirement benefits to eligible
employees of the Company. The costs of such services and benefits are allocated
to the Company ratably on the basis of its revenues. The Company believes that
the charges for such services and benefits have been calculated on a reasonable
basis and that the total amount of costs recognized in the statements of income
approximate what its actual costs would have been as a stand alone entity. In
1995 and during the nine months ended September 30, 1996, certain RSS employees
participated in a 401(k) Plan and a stock option plan administered by WMI. Such
charges for these services and benefits were $1,633 and $1,057 in 1995 and the
nine months ended September 30, 1996, respectively, and are included in selling
and administrative expenses in the statements of income.
RIS allocates a portion of its interest expense to the Company based on
the ratio which cumulative net cash advances to the Company bears to RIS's
cumulative net cash advances to all of its subsidiaries and the value of net
tangible assets. Management believes that the allocation of interest expense is
representative of financing costs attributable to the Company and that the
methodology used to allocate interest expense is reasonable. Intercompany
interest expense of $9,444 and $7,872 was allocated to RSS in 1995 and the nine
months ended September 30, 1996, respectively.
RIS also provides worker's compensation and medical insurance coverage to
the Company. The Company is allocated charges, which management deems
reasonable, for such coverage and at any point in time is fully insured by RIS.
The Company paid and provided expense in the amounts of $10,064 and $5,897 for
such coverage in the year ended December 31, 1995 and the nine months ended
September 30, 1996, respectively.
4. INCOME TAXES
The domestic operations of the Company were included in the consolidated
federal income tax return of RII. The Canadian operations of the Company are
included in the tax returns of Rust Scaffold Services of Canada, LTD. and JLG
Scaffolding, Inc. Income taxes relating to the Company were paid by RII. No tax
sharing agreement existed between the Company and RII. Income taxes have been
provided in accordance with Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" ("FAS 109"). In accordance with FAS 109, deferred
income taxes are provided when tax laws and financial accounting standards
differ with respect to the amount of income calculated in a given year and the
bases of assets and liabilities. Deferred income taxes are not provided on
undistributed earnings of foreign affiliates because those earnings are
considered to be permanently invested. If the reinvested earnings were to be
remitted, the U.S. income taxes under current law would be immaterial.
F-8
<PAGE>
RUST SCAFFOLD SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Following is a summary of the Company's income tax provision:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
1995 SEPTEMBER 30, 1996
-------- -------------------
<S> <C> <C>
Currently payable:
Federal ................ $3,422 $1,615
State .................. 530 243
------ ------
3,952 1,858
Deferred:
Federal ................ 3,131 2,110
State .................. 467 317
------ ------
3,598 2,427
Foreign ................. 750 528
------ ------
Total provision ......... $8,300 $4,813
====== ======
</TABLE>
The reconciliation of the statutory federal income tax rate to the
effective income tax rate for the year ended December 31, 1995 and the nine
months ended September 30, 1996 is as follows:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
1995 SEPTEMBER 30, 1996
----------- -------------------
<S> <C> <C>
Statutory federal income tax
rate ....................... 35.00% 35.00%
State and local taxes, net of
federal benefit ............ 3.25 3.09
Amortization of intangible
assets relating to acquired
businesses ................. 0.80 1.05
Other ....................... 2.93 1.74
----- -----
Effective tax rate .......... 41.98% 40.88%
===== =====
</TABLE>
5. STOCKHOLDER'S EQUITY -- NET INVESTMENT BY RIS
The Company participates in a centralized cash management program
administered by RIS. Cash collected from U.S. operations is remitted to RIS and
advances are made by RIS, as needed, to cover the Company's operating expenses
and capital requirements. Cash remittances and advances have been recorded to
the "Stockholder's Equity -- Net Investment by Rust Industrial Services Inc."
account in the accompanying Consolidated Statements of Stockholder's Equity.
6. COMMITMENTS AND CONTINGENCIES
In the ordinary course of conducting its business, the Company becomes
involved in various pending claims and lawsuits. These primarily relate to
employee matters. The outcome of these matters is not presently determinable,
but in the opinion of management, based on the advice of legal counsel, the
resolution of these matters is not anticipated to have a material adverse
effect on the financial position or results of operations of the Company.
F-9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Brand Scaffold Services, Inc.:
We have audited the accompanying consolidated balance sheets of Brand
Scaffold Services, Inc. and Subsidiaries (a Delaware corporation) as of
December 31, 1996 and 1997 and the related statements of operations,
stockholder's equity (deficit) and cash flows for the three months ended
December 31, 1996 and the year ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Brand Scaffold Services,
Inc. and Subsidiaries as of December 31, 1996 and 1997, and the results of
their operations and their cash flows for the three months ended December 31,
1996 and the year ended December 31, 1997 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
March 17, 1998
F-10
<PAGE>
BRAND SCAFFOLD SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000'S OMITTED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997 1998
-------------- -------------- --------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue ............................................. $44,412 $160,660 $118,173 $147,782
Operating expenses .................................. 34,170 122,638 88,535 113,038
------- -------- -------- --------
Gross profit ....................................... 10,242 38,022 29,638 34,744
Selling and administrative expenses ................. 4,743 25,840 11,868 19,868
Nonrecurring start-up expenses ...................... -- 2,498 1,936 --
------- -------- -------- --------
Operating income ................................... 5,499 9,684 10,834 14,876
Interest expense .................................... 4,504 15,422 16,868 12,712
Interest income ..................................... (195) (397) (324) (171)
------- -------- -------- --------
Pretax income (loss) ............................... 1,190 (5,341) (395) 2,335
Provision for income tax ............................ 525 -- -- --
------- -------- -------- --------
Income (loss) before extraordinary loss ............ 665 (5,341) (395) 2,335
Extraordinary loss on debt extinguishment, net of
tax of $0 .......................................... -- -- -- 4,329
------- -------- -------- --------
Net income (loss) .................................. 665 (5,341) (395) (1,994)
Less accretion of preferred stock dividends ......... (906) (4,172) (4,145) (3,512)
------- -------- -------- --------
Net income (loss) applicable to common stock ....... $ (241) $ (9,513) $ (4,540) $ (5,506)
======= ======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-11
<PAGE>
BRAND SCAFFOLD SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------- ------------------- -------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 4,881 $ 2,217 $ 5,117
Trade accounts receivable, net of allowance for doubtful
accounts of $925 in 1996, $1,000 in 1997, and $1,092 in
June, 1998 . ............................................ 22,581 23,672 27,225
Costs and estimated earnings in excess of billings on
uncompleted contracts ................................... 2,254 2,145 1,595
Notes receivable, current portion ......................... 837 388 280
Note receivable from WMI, current portion ................. 2,200 2,700 2,850
Other current assets ...................................... 1,949 2,374 2,771
-------- -------- --------
Total current assets .................................... 34,702 33,496 39,838
PROPERTY AND EQUIPMENT:
Land ...................................................... 1,633 1,633 1,633
Buildings ................................................. 1,890 2,097 2,176
Vehicles and other equipment .............................. 3,576 5,383 7,706
Scaffolding equipment ..................................... 151,289 160,576 172,424
Leasehold improvements .................................... 497 790 837
-------- -------- --------
Total property and equipment, at cost ..................... 158,885 170,479 184,776
Less -- Accumulated depreciation and amortization ......... 2,684 14,938 24,422
-------- -------- --------
Total property and equipment, net ....................... 156,201 155,541 160,354
-------- -------- --------
OTHER ASSETS:
Deferred financing costs, net ............................. 6,544 5,575 5,586
Note receivable from WMI, net of current portion .......... 4,875 2,175 --
Notes receivable, net of current portion .................. 1,944 756 655
-------- -------- --------
Total other assets ...................................... 13,363 8,506 6,489
-------- -------- --------
TOTAL ASSETS ............................................... $204,266 $197,543 $206,681
======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-12
<PAGE>
BRAND SCAFFOLD SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------- ------------------- -------------------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Revolving loan .................................................. $ -- $ 4,500 $ --
Current maturities of long term debt ............................ 8,250 9,500 4,250
Accounts payable ................................................ 2,562 4,186 2,556
Accrued expenses --
Payroll and related accruals .................................. 5,291 3,945 5,213
Workers compensation and health benefit liabilities ........... 795 3,717 6,555
Other ......................................................... 4,512 2,696 7,406
Billings in excess of costs and estimated earnings on
uncompleted contracts ......................................... 636 745 661
--------- --------- ---------
Total current liabilities .................................... 22,046 29,289 26,641
--------- --------- ---------
LONG-TERM DEBT ................................................... 149,750 140,250 154,750
--------- --------- ---------
DEFERRED INCOME TAXES ............................................ 2,317 2,040 1,899
--------- --------- ---------
COMMITMENTS AND CONTINGENCIES ....................................
14.5% SENIOR EXCHANGEABLE PREFERRED STOCK,
$0.01 par value, 1,250,000 shares authorized, 1,042,460
issued and outstanding .......................................... 25,906 31,140 34,651
--------- --------- ---------
STOCKHOLDER'S EQUITY (DEFICIT):
Common Stock, $0.01 par value, 100 shares authorized,
issued and outstanding ........................................ -- -- --
Paid-in capital ................................................. 17,604 18,477 18,477
Receivable from sale of Holdings' Common Stock .................. -- (336) (336)
Predecessor basis adjustment .................................... (13,038) (13,038) (13,038)
Cumulative translation adjustment ............................... (78) (525) (1,103)
Accumulated deficit ............................................. (241) (9,754) (15,260)
--------- --------- ---------
Total stockholder's equity (deficit) ............................ 4,247 (5,176) (11,260)
--------- --------- ---------
Total liabilities and stockholder's equity (deficit) ......... $ 204,266 $ 197,543 $ 206,681
========= ========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-13
<PAGE>
BRAND SCAFFOLD SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997 1998
-------------- -------------- --------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) ........................................... $ 665 $ (5,341) $ (395) (1,994)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities --
Deferred tax provision ..................................... 420 (167) -- --
Depreciation and amortization .............................. 3,567 13,294 9,685 10,541
Extraordinary loss ......................................... -- -- -- 4,329
Changes in operating assets and liabilities --
Trade accounts receivable, net ............................. 1,960 (1,513) (612) (3,552)
Costs and estimated earnings in excess of billings
on uncompleted contracts ................................. (1,643) 109 1,552 551
Notes receivable ........................................... 176 1,973 1,552 206
Scaffolding ................................................ 868 4,540 3,220 3,122
Accounts payable ........................................... 737 1,624 1,998 (1,631)
Accrued expenses ........................................... (1,182) (1,609) (2,669) 3,920
Billings in excess of costs and estimated earnings
on uncompleted contracts ................................. (562) 109 247 (84)
Other ...................................................... (40) (1,036) (2,246) (326)
-------- --------- --------- ------
Net cash provided by (used for) operating
activities ............................................. 4,966 11,983 11,932 15,734
-------- --------- --------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .......................... (1,642) (14,733) (10,766) (14,333)
Receipts on note receivable from WMI ........................ 363 2,200 1,650 2,025
Proceeds from sales of property and equipment other
than scaffolding ........................................... (17) 37 31 17
Acquisitions ................................................ -- -- -- (400)
-------- --------- --------- -------
Net cash used for investing activities .................. (1,296) (12,496) (9,085) (12,691)
-------- --------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ................................ -- -- -- 130,000
Payments of long-term debt .................................. (2,000) (8,250) (6,000) (120,750)
Borrowings/(Payments) of revolving loans .................... -- 4,500 -- (4,500)
Debt issuance financing costs ............................... -- -- -- (4,893)
Issuance of preferred stock ................................. -- 1,062 -- --
Capital contribution from Holdings .......................... -- 873 -- --
Receivable from sale of Holdings' common stock .............. -- (336) -- --
-------- --------- --------- --------
Net cash (used for) provided by financing
activities ............................................. (2,000) (2,151) (6,000) (143)
-------- --------- --------- --------
INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS ................................................. 1,670 (2,664) (3,153) 2,900
CASH AND CASH EQUIVALENTS, beginning of
period ...................................................... 3,212 4,881 4,881 2,217
-------- --------- --------- --------
CASH AND CASH EQUIVALENTS, end of period ..................... $ 4,881 $ 2,217 $ 1,728 $ 5,117
======== ========= ========= ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid ............................................... $ 3,016 $ 14,138 $ 10,558 $ 10,721
Income taxes paid ........................................... -- 113 -- --
======== ========= ========= ==========
NONCASH TRANSACTIONS:
Paid in-kind accretion of preferred stock dividends ......... $ 906 $ 4,172 $ 4,145 $ 3,512
Receipt of scaffolding as payment in lieu of cash on
accounts receivable ........................................ -- 422 -- 3,800
======== ========= ========= ==========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-14
<PAGE>
BRAND SCAFFOLD SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK RECEIVABLES
------------------ ADDITIONAL FROM SALE
PAID- OF HOLDING'S
SHARES DOLLARS IN CAPITAL COMMON STOCK
-------- --------- ------------ --------------
<S> <C> <C> <C> <C>
Balance, October 1, 1996 ........... 100 $ -- $17,604 $ --
Comprehensive Income:
Net income ........................
Translation Adjustment ............
Comprehensive income ..............
Paid-in-kind accretion of
preferred dividends ............... --- ---- ------- ------
Balance, December 31, 1996 ......... 100 -- 17,604 --
Comprehensive Income/(Loss):
Net income (Loss) .................
Translation Adjustment ............
Comprehensive (loss) ..............
Paid-in-kind accretion of
preferred dividends ...............
Capital contribution from DLJ
Brand Holdings, Inc. .............. 873
Issuance of prommissory notes
from officers and employees (336)
--- ---- ------- ------
Balance, December 31, 1997 ......... 100 -- 18,477 (336)
Comprehensive Income/(Loss):
Net income (loss) .................
Translation Adjustment ............
Comprehensive (loss) ..............
Paid-in-kind accretion of
preferred dividends ...............
Balance, September 30, 1998 --- ---- ------- ------
(unaudited) ....................... 100 $ -- $18,477 $ (336)
=== ==== ======= ======
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPRE- CUMULATIVE
BASIS HENSIVE ACCUMULATED TRANSLATION
ADJUSTMENT INCOME/LOSS DEFICIT ADJUSTMENT TOTAL
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1996 ........... $ (13,038) $ -- $ -- $ 4,566
Comprehensive Income:
Net income ........................ $ 665 665 665
Translation Adjustment ............ (78) (78) (78)
--------
Comprehensive income .............. $ 587
========
Paid-in-kind accretion of
preferred dividends ............... (906) (906)
------- ---- ---------
Balance, December 31, 1996 ......... (13,038) (241) (78) 4,247
Comprehensive Income/(Loss):
Net income (loss) ................. $ (5,341) (5,341) (5,341)
Translation Adjustment ............ (447) (447) (447)
--------
Comprehensive (loss) .............. $ (5,788)
========
Paid-in-kind accretion of
preferred dividends ............... (4,172) (4,172)
Capital contribution from DLJ
Brand Holdings, Inc. .............. 873
Issuance of prommissory notes
from officers and employees (336)
------- ------ ---- ---------
Balance, December 31, 1997 ......... (13,038) (9,754) (525) (5,176)
Comprehensive Income/(Loss):
Net income (loss) ................. $ (1,994) (1,994) (1,994)
Translation Adjustment ............ (578) (578) (578)
--------
Comprehensive (loss) .............. $ (2,572)
========
Paid-in-kind accretion of
preferred dividends ............... (3,512) (3,512)
--------- --------- -------- ---------
Balance, September 30, 1998
(unaudited) ....................... $ (13,038) $ (15,260) $ (1,103) $ (11,260)
========= ========= ======== =========
</TABLE>
The accompanying notes to financial statements are an integral part of
this statement.
F-15
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The financial statements included herein for the periods ended September
30, 1997 and 1998 have been prepared by the Company without audit. In the
opinion of management, all adjustments have been made which are of a normal
recurring nature necessary to present fairly the Company's financial position
as of September 30, 1997 and September 30, 1998 and the results of operations,
changes in stockholder's equity and cash flows for the nine months then ended.
Certain information and footnote disclosures have been condensed or omitted for
these periods. The results for interim periods are not necessarily indicative
of results for the entire year.
1. ORGANIZATION AND BUSINESS
Brand Scaffold Services, Inc. (a Delaware corporation) and its
subsidiaries (the "Company") are 100% owned by DLJ Brand Holdings, Inc.
("Holdings"). Holdings is owned 65.5% by Donaldson, Lufkin & Jenrette, Inc.
("DLJ"), 9.3% by Carlisle Enterprises, L.P. ("Carlisle"), 18.6% by Rust
International Inc. ("Rust") through its wholly owned subsidiary Rust Industrial
Services Inc. ("RIS") and 6.5% by the directors, officers and employees of the
Company. Rust is a subsidiary of Waste Management, Inc. ("WMI").
The Company believes it operates in one segment. The Company provides
scaffolding services primarily to refining, chemical, petrochemical and utility
industries, and to a lesser extent, pulp and paper plants, nuclear facilities
and general commercial clients. Scaffolding services are typically provided in
connection with periodic, routine cleaning and maintenance of refineries,
chemical plants and utilities, as well as for new construction projects. The
Company provides personnel to erect and dismantle scaffolding structures,
transport scaffolding to project sites and supervise and manage such
activities. In addition, the Company rents and occasionally sells scaffolding
that is classified as property and equipment on the consolidated balance sheet.
The Company maintains a substantial inventory of scaffolding in the United
States and Canada.
The Company's services are not rendered to or dependent on any single
customer within the industrial or commercial markets and therefore the Company
does not believe that a material concentration of credit risk exists, except
that one customer accounted for 18.0% and 16.9% of revenues for the three
months ended December 31, 1996, and for the year ended December 31, 1997,
respectively.
2. PURCHASE TRANSACTION
On September 30, 1996, the Company, a newly formed entity created by the
merchant banking group of DLJ, purchased the net assets of Rust Scaffold
Services, Inc. and its subsidiaries, which were direct and indirect
subsidiaries of Rust (the "Acquisition"). The purchase price approximated the
fair values of the net tangible assets acquired. The Company paid Rust the
following, at fair values (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Cash ................................................................ $178,038
199,000 shares of senior exchangeable preferred stock (see Note 9) .. 4,975
2,487,500 shares of common stock of Holdings (see Note 11) .......... 2,487
Subordinated note (see Note 6) ...................................... 4,800
--------
$190,300
========
</TABLE>
To fund the Acquisition, on September 30, 1996, the Company entered into a
$190 million credit agreement (the "Credit Agreement") with Bank of America
Illinois and DLJ Capital Funding pursuant to which the Company borrowed $160
million. On November 21, 1996, in accordance with the Credit Agreement, such
borrowings were placed with various financial institutions. The Acquisition was
accounted for using the purchase method. As a result, the assets and
liabilities of the Company were recorded at their approximate fair values as of
October 1, 1996. As part of the Acquisition, Rust retained liability for
certain tax, legal, environmental and other contingencies related to periods
prior to October 1, 1996.
F-16
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company recorded a liability of approximately $1,200,000 on October 1,
1996, as part of the acquisition cost in connection with management's decision
to exit and relocate certain offices and to involuntarily terminate or relocate
certain employees. The Company substantially completed its restructuring
activities in 1997. Charges to the liability were $900,000 for the year ended
December 31, 1997. As of December 31, 1997, the balance of the liability was
$100,000.
As indicated above, on the date of the purchase, Rust retained a 19.9%
interest in the Company. Accordingly, a "Predecessor Basis Adjustment" of
$13,038,000 was recorded to the acquired assets and stockholder's equity
reflecting Rust's historical carrying value of its retained ownership interest
in the sold assets.
The following table presents pro forma information for the Company for the
year ended December 31, 1996 assuming the acquisition had taken place on
January 1, 1996 (in thousands).
<TABLE>
<CAPTION>
UNAUDITED
<S> <C>
Revenue ............. $169,181
Net Income .......... 3,352
</TABLE>
The pro forma amounts have been derived from the results for Rust Scaffold
Services, Inc. for the nine months ended September 30, 1996 and for the Company
for the three months ended December 31, 1996 plus certain adjustments: an
increase of interest expense of $3,470,000 and an increase in depreciation and
amortization of $4,218,000, as well as the related tax impact. These amounts
are not necessarily indicative of the results the Company would have achieved
for the full year had the Acquisition occurred on January 1, 1996.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements are prepared on a consolidated basis
and include those assets, liabilities, revenues and expenses directly
attributable to the operations of the Company. All significant intercompany
balances and transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes contract revenue on the percentage-of-completion
basis with losses recognized in full when identified. Changes in project
performance and conditions, estimated profitability and final contract
settlements may result in future revisions to costs and income. Substantially
all of the Company's contracts are completed in less than six months. Other
revenues are recognized when the services are performed.
RENTAL AND SALES OF SCAFFOLDING
For the three months ended December 31, 1996 and the year ended December
31, 1997, revenues from the rental of scaffolding were $11,230,000 and
$40,847,000, respectively. For the nine months ended September 30, 1997 and
September 30, 1998, such revenues were $30,288,000 (unaudited) and $36,367,000
(unaudited), respectively.
F-17
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company periodically sells scaffolding to third parties, primarily to
its rental customers. The Company recognizes revenue for the proceeds of such
sales and records as operating expense the net book value of the scaffolding.
Net book value is determined, assuming the oldest scaffolding is sold first, as
the Company maintains inventory records on a group basis. Revenues and gross
profit from sales of scaffolding were $1,395,000 and $567,000, respectively,
for the three months ended December 31, 1996; $7,714,000 and $3,174,000,
respectively for the year ended December 31, 1997; $5,392,000 (unaudited) and
$2,109,000 (unaudited), respectively, for the nine months ended September 30,
1997 and $4,453,000 (unaudited) and $1,332,000 (unaudited), respectively for
the nine months ended September 30, 1998.
CASH AND CASH EQUIVALENTS
The Company considers all short-term deposits purchased with original
maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment (including major repairs and improvements that
extend the useful life of the asset) are capitalized and stated at cost.
Ordinary maintenance and repairs of equipment are charged to expense. The cost
of property and equipment is depreciated over the estimated useful lives on the
straight-line method as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings ............................ 10 to 40 years
Vehicles and other equipment ......... 3 to 20 years
Scaffolding equipment ................ 3 to 25 years
Leasehold improvements ............... Life of the applicable lease or life of the
improvement, whichever is shorter
</TABLE>
For the three months ended December 31, 1996 and the year ended December
31, 1997, depreciation expense was $2,899,000 and $12,325,000, respectively.
For the nine months ended September 30, 1997 and September 30, 1998, such
expense was $8,877,000 (unaudited) and $9,984,000 (unaudited), respectively.
DEFERRED FINANCING COSTS
In connection with the Acquisition, the Company deferred financing costs
totaling $7,212,000. Of this amount, $588,000 was allocated to borrowings for
the period October 1, 1996, to November 21, 1996, and was charged to expense
during that period. The remaining $6,624,000 was allocated to the borrowings
described in Note 6 and are being amortized over the life of the Credit
Agreement. In 1998, the Company recorded an extraordinary loss of $4.3 million
to write off deferred financing costs related to the early extinguishment of
debt (see Note 6). For the three months ended December 31, 1996 and the year
ended December 31, 1997, amortization of deferred financing costs, included in
interest expense, was $668,000 and $969,000, respectively. For the nine months
ended September 30, 1997 and September 30, 1998, such amortization expense was
$807,000 (unaudited) and $553,000 (unaudited), respectively. Accumulated
amortization was $969,000 and $1,637,000 as of December 31, 1996 and December
31, 1997, respectively. In connection with the February 1998 issuance of senior
notes, the Company paid financing fees and expenses of $4.4 million, which were
deferred and are being amortized over 10 years. Of these fees, $3.9 million
related to commissions.
DERIVATIVE FINANCIAL INSTRUMENTS
Through February 1998, the Company used an interest rate collar to hedge
its exposure to interest rate fluctuations. The collar has the effect of
establishing a maximum and a minimum interest
F-18
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
rate on a portion of the Company's underlying variable rate debt obligations.
The maximum and minimum interest rates associated with the interest rate collar
are 8.50% and 5.69%, respectively, and the notional amount at December 31, 1997
was $75 million. In 1997, the existence of this hedge had no impact on the
financial position, results of operations or cash flows of the Company.
ASSET IMPAIRMENT
If facts and circumstances suggest that a long-lived asset may be
impaired, the carrying value is reviewed. If this review indicates that the
value of the asset will not be recoverable, as determined based on projected
undiscounted cash flows related to the asset over its remaining life, the
carrying value of the asset is reduced to its estimated fair value.
FOREIGN OPERATIONS
The assets and liabilities of the Company's wholly owned foreign
subsidiary, Brand Scaffold Services of Canada, Inc. are translated at the rates
of exchange in effect on the balance sheet date while income statement accounts
are translated at the average exchange rate in effect during the period. The
resulting translation adjustments are charged or credited to the cumulative
translation adjustment account. Revenues from the Canadian operation and
scaffolding equipment in Canada are less than 10% of the consolidated totals
for the Company.
RECLASSIFICATIONS
Certain reclassifications have been made to the December 31, 1996
financial statements to conform with the December 31, 1997 presentation.
4. NOTES RECEIVABLE
Notes receivable result from scaffolding sales. As of December 31, 1996
and December 31, 1997, approximately $2,781,000 and $991,000 of such notes
maturing in 3-5 years were outstanding with interest rates ranging from 9.75%
to 11.00% and 8% to 10.25%, respectively.
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred income taxes
are not provided on undistributed earnings of the Company's foreign subsidiary
because those earnings are considered to be permanently invested. If the
reinvested earnings were to be remitted, the U. S. income taxes under current
law would be immaterial.
For the three months ended December 31, 1996, the Company's income tax
provision consisted of deferred domestic taxes of $420,000 and current foreign
taxes of $105,000. For the year ended December 31, 1997, such provision
consisted of a deferred domestic tax benefit of $287,000, current foreign tax
expense of $167,000 and deferred foreign tax expense of $120,000.
F-19
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The reconciliation of the statutory federal income tax (benefit) expense
on the Company's
pretax income (loss) to the actual provision for income taxes for the three
months ended December 31, 1996 and the year ended December 31, 1997, are as
follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
-------------------- ------------------
<S> <C> <C>
Statutory federal income taxes ................ $417 $ (1,869)
State and local taxes, net of federal ......... 45 (174)
Foreign taxes ................................. 35 287
Valuation allowance ........................... -- 1,918
Other ......................................... 28 (162)
---- --------
Provision for income taxes ................... $525 $ --
==== ========
</TABLE>
The components of the net deferred tax liability as of December 31, 1996
and 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
----------- -------------
<S> <C> <C>
DEFERRED TAX ASSETS--
Accrued liabilities ..................... $ 2,061 $ 3,152
Property and equipment .................. 1,641 --
Net operating loss carryforward ......... 1,989 26,371
Valuation allowance ..................... (5,178) (7,096)
-------- ---------
Deferred tax assets .................... $ 513 $ 22,427
======== =========
DEFERRED TAX LIABILITIES--
Note receivable from WMI ................ $ (2,830) $ (1,950)
Property and equipment .................. -- (22,517)
-------- ---------
Deferred tax liabilities ............... $ (2,830) $ (24,467)
======== =========
</TABLE>
The Company is required to record a valuation allowance when it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. As of December 31, 1997, a valuation allowance of $7,096,000 was
recorded, which increased $1,918,000 for the year ended December 31, 1997.
At December 31, 1996 and December 31, 1997, the Company had net operating
loss carryforwards for federal income tax purposes of $4,972,000 and
$65,928,000 which expire in 2012 and 2013, respectively.
6. DEBT AND BORROWING ARRANGEMENTS
At December 31, 1996, December 31, 1997, and September 30, 1998 long term
debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, 1998
1996 1997 (UNAUDITED)
-------------- -------------- --------------
<S> <C> <C> <C>
Term Loans ..................... $158,000 $149,750 $ 29,000
10 1/4% Senior Notes ........... -- -- 130,000
Less Current Portion ......... 8,250 9,500 4,250
-------- -------- --------
Long-Term Debt ................. $149,750 $140,250 $154,750
======== ======== ========
</TABLE>
In 1996, in connection with the Acquisition, the Company entered into a
Credit Agreement which provides for Term Loan Commitments under Senior Secured
Credit facilities totaling $160 million, and a Revolving Loan Commitment
totaling $30 million. In February 1998, the Company issued $130 million of
10 1/4% Senior Notes due February 2008. The offering was underwritten by DLJ.
The
F-20
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
proceeds of this offering were used to repay $120 million of the Term Loans
outstanding under the Credit Agreement. In addition, in February 1998, the
Company amended the Credit Agreement to reduce the total facility to $60
million. This amendment included revisions to certain covenant requirements. In
connection with the Credit Agreement, the Company incurred administrative and
commitment fees for the three months ended December 31, 1996 and for the year
ended December 31, 1997, such costs, included in interest expense, were $60,000
and $216,000, respectively. Long-term debt outstanding as Term Loans as of
September 30, 1998 (unaudited) are due in quarterly installments which total in
each year as follows (in thousands):
<TABLE>
<CAPTION>
1998
------------
(UNAUDITED)
<S> <C>
1998 (Three Months) ......... $ 500
1999 ........................ 5,000
2000 ........................ 6,000
2001 ........................ 8,500
2002 ........................ 9,000
-------
$29,000
=======
</TABLE>
Interest rates are determinable under the Credit Agreement based upon
certain market "Base Rates" or LIBOR, plus an "Applicable Margin" of between
1.75% to 3.5%. The Applicable Margins for Tranche B and Tranche C loans are
fixed while those for Tranche A loans ($58,250,000 and $51,000,000 as of
December 31, 1996 and December 31, 1997, respectively) vary based, generally,
on earnings performance. The average interest rate under Term Loans in effect
during the three months ended December 31, 1996 and the year ended December 31,
1997 was 9.59% and 8.90%, respectively. Such rates at September 30, 1997 and
September 30, 1998 were 8.9% (unaudited) and 8.9% (unaudited), respectively.
Interest expense on the Term Loans for the three months ended December 31, 1996
and for the year ended December 31, 1997 was $3,836,000 and $13,984,000,
respectively.
Revolving loan commitents equal an amount based upon an eligible borrowing
base, as defined, with a maximum available limit of $30 million. The loan
expires September 30, 2002, and interest rates are based on certain market
"Base Rate" or LIBOR plus a margin of between 1.75% and 3.5% (generally based
on earnings performance). At December 31, 1996 and December 31, 1997, the
available borrowing base (which is net of outstanding borrowings) was
$6,842,000 and $13,136,000, respectively. At September 30, 1997 and September
30, 1998, such base was $12,153,000 (unaudited) and $13,122,000 (unaudited),
respectively. As of December 31, 1996 and December 31, 1997, amounts borrowed
under the revolving loan commitments were $0 and $4,500,000, respectively. As
of September 30, 1997 and September 30, 1998, such amounts were $0 (unaudited)
and $0 (unaudited), respectively. Any borrowings under the revolving loan
commitment in excess of $10 million must be repaid once per year, in accordance
with the Credit Agreement. Interest expense on the revolving loan for the three
months ended December 31, 1996 and the year ended December 31, 1997, was $0 and
$119,000, respectively. For the nine months ended September 30, 1997 and
September 30, 1998, such interest expense was $18,000 (unaudited) and $7,000
(unaudited), respectively.
Substantially all assets of the Company are pledged as collateral for the
facilities described above. In addition, the Company is required to comply with
various affirmative and negative covenants, including financial covenants
requiring certain levels of net worth to be maintained and the achievement of
certain financial ratios. The Company was not in compliance with certain
covenants under the Credit Agreement for the quarter ended December 31, 1997.
Waivers have been obtained from the lenders for such violations. The waivers
related to financial covenants contained in the Credit Agreement which, as of
December 31, 1997, required the Company to maintain (i) a Leverage Ratio (as
defined in the Credit Agreement) no greater than 4.60:1, (ii) an Interest
Coverage Ratio (as
F-21
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
defined in the Credit Agreement) of at least 2.25:1 and (iii) a Fixed Charge
Coverage Ratio (as defined in the Credit Agreement) of at least 1.15:1. The
waivers became effective upon the execution by the Company and the Required
Lenders. In order to induce the Lenders to grant the waivers, (a) the Company
certified that the representations and warranties set forth in Article VI of
the Credit Agreement and in the Loan Documents were true and correct as of the
date of the waivers and (b) the Company represented and warranted that, after
giving effect to the waivers, no default or event of default had occurred or
was continuing as of the date of the waivers.
As part of the Acquisition, the Company issued a Subordinated Note (the
Subordinated Note) to Rust totaling $14.5 million due 2008. The Subordinated
Note was recorded at its fair value of $4.8 million, assuming an effective
interest rate of 18% per annum. On September 30, 1996, Holdings assumed all
obligations under the Subordinated Note by making a capital contribution to the
Company of $4.8 million, which is included in paid-in capital of the Company.
Because Holdings has no revenue generating activities, other than its ownership
of the Company, it is likely that the Company's cash flows will service all or
part of Holding's obligation under the Subordinated Note. Subject to certain
conditions, Holdings has the option of paying interest, calculated annually,
through the issuance of additional Subordinated Notes in lieu of cash.
Additionally, based on Holdings' financial performance, the Subordinated Note's
interest and principal payments may be delayed or accelerated. As a result of
interest accretion, Holding's carrying amount of the Subordinated Note is
approximately $5,965,000 and $5,055,000 as of December 31, 1997 and 1996,
respectively. No principal or interest cash payments were made during 1997.
7. LEASE OBLIGATIONS
The Company leases a portion of its operating and office facilities under
operating leases. For the three months ended December 31, 1996 and the year
ended December 31, 1997, rent expense was approximately $271,000 and
$1,334,000, respectively. The non-cancelable rental obligations as of December
31, 1997, are as follows:
<TABLE>
<CAPTION>
1997
---------
<S> <C>
1998 ................ $1,529
1999 ................ 1,166
2000 ................ 831
2001 ................ 703
2002 ................ 508
Thereafter .......... 692
------
Total ............. $5,429
======
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
In the ordinary course of conducting its business, the Company becomes
involved in various pending claims and lawsuits. These primarily relate to
employee matters. The outcome of these matters is not presently determinable,
however, in the opinion of management, based on the advice of legal counsel,
the resolution of these matters is not anticipated to have a material adverse
effect on the financial position or results of operations of the Company.
The Company has available Letter of Credit Commitments in an amount not to
exceed $15 million, of which $3,651,000 and $6,751,000 was outstanding with
Bank of America at December 31, 1996 and December 31, 1997, respectively. At
September 30, 1997 and September 30, 1998, such amounts were $3,651,000
(unaudited) and $7,101,000 (unaudited), respectively. For the three months
ended December 31, 1996 and the year ended December 31, 1997, the Company paid
fees related to such commitments (included in interest expense) of $20,000 and
$134,000, respectively. For the nine months ended September 30, 1997 and
September 30, 1998, such fees were $28,000 (unaudited) and $54,000 (unaudited),
respectively.
F-22
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SENIOR EXCHANGEABLE PREFERRED STOCK
The Company has authorized 1,250,000 shares and has issued and outstanding
1,042,460 of Senior Exchangeable Preferred Stock (the "Senior Preferred
Stock"). The Senior Preferred Stock is mandatorily redeemable on March 31,
2008, at a redemption price equal to aggregate liquidation value plus unpaid
dividends. The liquidation value of each share of Senior Preferred Stock is $25
at issuance. Dividends are calculated quarterly on the liquidation value of
such shares at 14.5% annually. For the five- year period ended September 30,
2001, such dividends accrete on a compounded basis and increase the liquidation
value. Dividends are payable in cash subsequent to this date. For the three
months ended December 31, 1996 and the year ended December 31, 1997, dividends
of $906,250 and $4,172,000 were accreted. For the nine months ended September
30, 1997 and September 30, 1998, such accreted amounts were $4,145,000
(unaudited) and $3,512,000 (unaudited), respectively. As a result, the loss
attributable to common stockholders for the three months ended December 31,
1996 and the year ended December 31, 1997 was $241,000 and $9,513,000,
respectively. For the nine months ended September 30, 1997 and September 30,
1998, such income (loss) was $(4,540,000) (unaudited) and $(5,505,000)
(unaudited), respectively.
The Senior Preferred Stock carries no voting rights, but its holders have
certain defined rights upon certain events occurring. In the event of a change
in control of the Company, each holder of Senior Preferred Stock will have the
right to require the Company to repurchase its shares at 101% of the
liquidation value. The Company may redeem the Senior Preferred Stock at certain
premiums to the liquidation value at any time after September 30, 2001 or upon
the occurrence of an initial public offering of the Company's common stock
prior to September 30, 1999. Additionally, at the option of the Company, the
Senior Preferred Stock is exchangeable into 14.5% Subordinated Exchange
Debentures due 2008, under certain conditions.
10. STOCKHOLDER'S EQUITY
The Company has authorized, issued and outstanding 100 shares of $.01 par
common stock. All of the common stock of the Company is owned by Holdings.
11. PARENT COMPANY TRANSACTIONS
Holdings has authorized 15,000,000 shares and issued and outstanding
13,373,356 shares of $.01 par common stock.
As part of the Acquisition, on September 30, 1996, Holdings and Carlisle
agreed upon a grant of options to Carlisle (the "Carlisle Options") to acquire
918,750 shares of Holdings' common stock. The Carlisle Options fall into three
categories, each with different vesting terms: time based, performance based,
and path dependent (for which vesting is contingent upon certain measurements
of the value of the Company). Substantially all of the value of the Carlisle
Options was considered a cost of the Acquisition and pushed down to the
Company's financial statements.
In 1997, Holdings made a capital contribution to the Company of $873,356,
representing cash and notes received by the Company from the sale of Holdings'
common stock to certain directors, officers and employees of the Company. At
December 31, 1997, certain officers and employees of the Company have
outstanding promissory notes in the aggregate amount of $336,000, which were
issued to the Company as consideration for a portion of the above Holdings'
common stock. Such outstanding amounts were $336,000 (unaudited) at September
30, 1997 and September 30, 1998, respectively. The notes earn interest at 7.03%
and mature on 2002. These notes are secured by shares owned by such officers
and employees.
In 1997, the Board of Directors of Holdings approved a stock option plan
for key employees of the Company. During 1997, Holdings granted certain
employees options to acquire 957,000 shares of
F-23
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Holding's common stock. The options were granted with an exercise price of
$1.00 per share which management believes approximated the fair value of
Holdings' common stock at the date of grant. The options vest over a maximum of
ten years or a minimum of five years provided certain performance criteria are
met. Unvested options are subject to forfeiture, upon employee termination, as
defined. Additionally, any shares acquired upon exercise are subject to
repurchase rights of the Company upon termination of employment, as defined.
Upon a change of control, as defined, all unvested options will vest. In 1997,
no options were canceled or exercised. The Company adopted the disclosure-only
option under SFAS 123 "Accounting for Stock Based Compensation" ("SFAS 123").
The Company accounts for employee stock options under APB Opinion 25, as
permitted under generally accepted accounting principles. Accordingly, no
compensation cost has been recognized in the accompanying financial statements
related to these options. Had compensation cost for these options been
determined consistent with SFAS 123, the Company's net loss would reflect the
following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
------------------
<S> <C>
Net loss
As reported ......... $ (5,341)
Pro forma ........... (5,384)
</TABLE>
The fair value of each option is estimated on the date of grant based
using the Black-Scholes option pricing model with the following
weighted-average assumptions: a risk-free interest rate of 6.5%; a 0% dividend
yield; an average expected life of seven years. The fair value of options
granted during 1997 was calculated to be $0.45 per option.
In accordance with the Shareholder's Agreement of Holdings, in the event
any shareholder desires to transfer any shares of Holdings to a third party
prior to September 30, 2001, such shareholders must first offer such shares to
the other shareholders. Also, certain shareholders engaged in a transfer of
shares to a third party have the right to compel the other shareholders to sell
a proportionate share of their holdings to the third party, as defined.
12. RELATED PARTY TRANSACTIONS
Certain shareholders of Holdings receive a quarterly Management Advisory
Fee in return for management, advisory and other services rendered. Such fees
totaled $125,000 and $500,000 for the three months ended December 31, 1996 and
the year ended December 31, 1997, respectively.
In connection with the Acquisition, the Company entered into a
Transitional Services Agreement with WMI and Rust. In consideration of certain
services to be rendered by the Company and the licenses and preferred customer
status granted by the Company, WMI shall pay to the Company $725,000 per
quarter through September 30, 1999 ($8.7 million in total). The Company
recorded $7,437,500 as a note receivable from WMI in purchase accounting. The
balance of $1,262,500 is being accounted for as a reduction to the Company's
operating expenses in the period the aforementioned services are provided. For
the three months ended December 31, 1996 and the year ended December 31, 1997,
the Company received $725,000 and $2,900,000 respectively in cash and reduced
its note receivable by $362,000 and $2,200,000 respectively. For the three
months ended December 31, 1996 and the year ended December 31, 1997, operating
expenses were reduced by $362,000 and $700,000, respectively. For the nine
months ended September 30, 1997 and September 30, 1998, such reductions were
$525,000 (unaudited) and $150,000 (unaudited), respectively.
13. EMPLOYEE BENEFIT PLAN
In 1997, the Company established the Brandshare 401(k) Savings Plan and
Profit Sharing Plan. Substantially all employees are eligible to participate in
the Plan. Participants may elect to defer 2% to
F-24
<PAGE>
BRAND SCAFFOLD SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10% of their salary. The Company, at its sole discretion, may make matching
contributions to the Plan. For the year ended December 31, 1997 and the nine
months ended September 30, 1998, the Company contributed $318,000 and $261,000
(unaudited) to the Plan.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS--The carrying amounts approximate fair
value.
NOTES RECEIVABLE--The fair value of notes receivable are based on
discounted future cash flows at current interest rates.
REVOLVING LOAN AND LONG-TERM DEBT--The carrying amounts of the
Company's borrowings under the Credit Agreement approximate their fair
value because such borrowings carry variable interest rates.
INTEREST RATE HEDGE--The fair values of interest rate collars are the
amounts at which they could be settled, based on estimates obtained from
dealers.
14.5% SENIOR EXCHANGEABLE PREFERRED STOCK--The liquidation amounts
plus accreted dividends approximate fair value.
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1996 and 1997, are as follows:
<TABLE>
<CAPTION>
1996 1997
---------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash and cash equivalents ......... $ 4,881 $ 4,881 $ 2,217 $ 2,217
Notes receivable .................. 2,781 3,021 1,144 1,192
Revolving loan .................... -- -- (4,500) (4,500)
Long-term debt .................... (158,000) (158,000) (149,750) (149,750)
Interest rate hedge ............... -- -- -- (298)
14.5% Senior Exchangeable Preferred
Stock ........................... 25,906 25,906 31,140 31,140
</TABLE>
15. ACCOUNTING STANDARD NOT YET IMPLEMENTED
In June 1998, the Financial Accounting Standards Board (FASB) adopted SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value and that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the income statement, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting. SFAS No. 133 is effective for fiscal years beginning after June 15,
1999. The Company has not yet quantified the impacts of adopting SFAS No. 133
on its consolidated financial statements nor has it determined the timing or
method of its adoption of SFAS No. 133. However, SFAS No. 133 could increase
volatility in earnings and other comprehensive income.
F-25
<PAGE>
================================================================================
You should rely only on the information contained in this document or that we
have referred you to. We have not authorized anyone to provide you with
information that is different. We are offering to sell, and seeking offers to
buy shares of preferred stock and, if issued, exchange debentures only in
jurisdictions where offers and sales are permitted. The information contained
in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or any sale of the
preferred stock or exchange debentures.
-----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary .............................. 2
Risk Factors .................................... 10
Use of Proceeds ................................. 15
Capitalization .................................. 15
Selected Consolidated Financial Data ............ 16
Management's Discussion and Analysis of
Financial Condition and Results of Operations .. 18
Business ........................................ 26
Management ...................................... 32
Principal Stockholders .......................... 37
Certain Relationships and Related Transactions .. 39
Description of Bank Facility .................... 40
Selling Holders ................................. 42
Registration Rights Agreement ................... 42
Description of Preferred Stock .................. 43
Description of Exchange Debentures .............. 44
Description of Notes ............................ 48
Certain Federal Income Tax Considerations ....... 49
Plan of Distribution ............................ 49
Legal Matters ................................... 49
Independent Public Accountants .................. 50
Where You Can Find More Information ............. 50
Index to Consolidated Financial Statements ...... F-1
</TABLE>
[GRAPHIC OMITTED]
BRAND SCAFFOLD
SERVICES, INC.
209,000 SHARES
14.5% SENIOR EXCHANGEABLE PREFERRED
STOCK DUE 2008
$26,881,622 PRINCIPAL AMOUNT OF 14.5%
JUNIOR SUBORDINATED EXCHANGE
DEBENTURES DUE 2008
----------------
PROSPECTUS
----------------
JANUARY , 1999
===============================================================================
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses, other than underwriting
discounts and commissions, to be incurred in connection with the issuance and
distribution of the securities registered under this registration statement:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee ......... $ 2,002
Printing expenses ........................................... 840*
Legal fees and expenses ..................................... 60,000*
Accounting fees and expenses ................................ 10,000*
--------
Total ....................................................... 72,842*
========
</TABLE>
- ----------
* Estimated
All expenses incurred are to be borne by Brand.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Delaware General Corporation Law (the "DGCL"), directors,
officers, employees and other individuals may be indemnified against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative or investigative (other than a derivative action) if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the Company and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard of care is applicable in the case of a
derivative action, except that indemnification only extends to expenses
(including attorneys' fees) incurred in connection with the defense or
settlement of such an action, and the DGCL requires court approval before there
can be any indemnification of expenses where the person seeking indemnification
has been found liable to the Company.
The Company's Certificate of Incorporation, as amended, provides in effect
for the indemnification by the Company of each director and officer of the
Company to the fullest extent permitted by applicable law.
If the DGCL is amended to further expand the indemnification permitted to
directors, officers, employees or agents of the Company, then the Company shall
indemnify such persons to the fullest extent permitted by the DGCL, as so
amended.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------------------------
<S> <C> <C>
*3.1 -- Certificate of Incorporation of the Registrant
*3.2 -- Certificate of Amendment of Certificate of Incorporation of the Registrant
*3.3 -- Amended and Restated By-Laws of Brand Scaffold Services, Inc.
*4.1 -- Amended and Restated Certificate of Designations, Preferences and Rights of 14.5%
Senior Exchangeable Preferred Stock due 2008 (the "Preferred Stock")
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -------------------------------------------------------------------------------------------
<S> <C> <C>
*4.2 -- Amended and Restated Shareholders Agreement dated as of September 30, 1996
among DLJ Merchant Banking Partners, L.P., DLJ International Partners, C.V.,
DLJ Offshore Partners, C.V., DLJ Merchant Banking Funding, Inc., Carlisle-Brand
Investors, L.P., Rust Industrial Services Inc., DLJ Brand Holdings, Inc. ("Holdings"),
Brand Scaffold Services, Inc. and Certain Individuals
*4.3 -- Stock Option Agreement dated as of March 4, 1997 between Holdings and Carlisle
Group, L.P.
*4.4 -- Indenture dated as of February 25, 1998 between the Company, and U.S. Trust
Company of Texas, N.A., as Trustee, relating to the Company's 101/4% Senior Notes
due 2008 (the "Notes")
*4.5 -- Registration Rights Agreement, dated as of February 25, 1998, between the Company
and Donaldson Lufkin & Jenrette Securities Corporation ("DLJSC"), as initial
purchaser, relating to the Notes
*4.6 -- Registration Rights Agreement dated as of March 2, 1998 by and between the
Company and DLJSC, relating to the Preferred Stock
4.7 -- Form of Indenture relating to the Company's 14.5% Junior Subordinated Exchange
Debentures due 2008
5 -- Opinion of Davis Polk & Wardwell, Counsel of the Registrant, regarding the validity of
the securities being registered
*10.1 -- Credit Agreement dated as of September 30, 1996, among Brand Scaffold Services,
Inc., the Banks party thereto, DLJ Capital, as Syndication Agent, and Bank of
America, as Administrative Agent
*10.2 -- Purchase Agreement dated as of February 25, 1998, by and between the Company and
DLJSC, as initial purchaser, relating to the Notes
*10.3 -- The Amended and Restated Transaction Agreement dated as of September 18, 1996
among DLJ Merchant Banking Partners, L.P., DLJ International Partners, C.V.,
DLJ Offshore Partners, C.V., DLJ Merchant Banking Funding, Inc., Carlisle
Enterprises, L.P., Holdings, the Company, Brand Scaffold Builders, Inc., Brand Scaffold
Rental & Erection, Inc. 702569 Alberta Ltd., Rust International Inc., Rust Industrial
Services Inc., Rust Scaffold Services Inc., Rust Scaffold Builders Inc., and Rust Scaffold
& Erection Inc.
*10.4 -- Employment Agreement dated as of October 1, 1996 between the Company and
John M. Monter
*10.5 -- Employment Agreement dated as of July 29, 1996 between the Company and
James "Marty" McGee
*10.6 -- Employment Agreement dated as of July 29, 1996 between the Company and
Ronald W. Moore
*10.7 -- Employment Agreement dated as of July 29, 1996 between the Company and
Otto K. Knoll
*10.8 -- Offer Letter dated as of March 30, 1998 between the Company and Ian R. Alexander
12 -- Statement of Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
*21 -- Subsidiaries of the Registrant
23.1 -- Consent of Arthur Andersen LLP, independent public accountants
23.2 -- Consent of Davis Polk & Wardwell, counsel to the Registrant (included in Exhibit 5)
24 -- Powers of Attorney (included on signature page)
27 -- Financial Data Schedule
</TABLE>
- ----------
* Incorporated herein by reference to exhibit of the same number in the
Registrant's Registration Statement on Form S-1, Registration Number
333-56817.
II-2
<PAGE>
(b) Schedules
All supplementary schedules relating to the Registration Statement are
omitted because they are not required or because the required information,
where material, is contained in the Financial Statements.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the Trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act ("Act") in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Act.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-1 TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF
CHESTERFIELD, STATE OF MISSOURI, JANUARY 25, 1999.
BRAND SCAFFOLD SERVICES, INC.
January 25, 1999
By: /s/ Ian R. Alexander
-------------------------------------
Ian R. Alexander
Chief Financial Officer,
Vice President, Finance and Secretary
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John M. Monter, Ian R. Alexander and Jeffrey W.
Peterson, jointly and severally, his true and lawful attorneys-in-fact, with
full power of substitution and resubstitution for him and in his name, place
and stead, in any and all capacities, to sign, pursuant to the requirements of
the Securities Act of 1933, the registration statement on Form S-1 for BRAND
SCAFFOLD SERVICES, INC. in connection with the Company's registration of its
14.5% Senior Exchangeable Preferred Stock due 2008, $0.01 par value per share,
along with the Company's 14.5% Junior Subordinated Exchange Debentures due 2008
issuable upon exchange of the preferred stock, and to file the same with the
Securities and Exchange Commission, together with all exhibits thereto and
other documents in connection therewith, and to sign on his behalf and in his
stead, in any and all capacities, any amendments (including post-effective
amendments) and supplements to said registration statement, incorporating such
changes as any of the said attorneys-in-fact deems appropriate, in the matter
of the proposed offering by the Company of the securities registered pursuant
to said registration statement, hereby ratifying and confirming all that each
of said attorneys-in-fact, or his substitute or substitutes, may do or cause to
be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT ON FORM S-1 HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- -----
<S> <C> <C>
/s/ John M. Monter Director, Chief Executive Officer and January 25, 1999
- ------------------------- President (Principal Executive
John M. Monter Officer)
/s/ Ian R. Alexander Chief Financial Officer, Vice January 25, 1999
- ------------------------- President, Finance and Secretary
Ian R. Alexander (Principal Financial Officer and
Principal Accounting Officer)
Chairman of the Board January 25, 1999
- -------------------------
David L. Jaffe
/s/ Robert Bonczek Director January 25, 1999
- -------------------------
Robert Bonczek
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- -------- ----------------
<S> <C> <C>
/s/ James S. Carlisle Director January 25, 1999
- -------------------------
James S. Carlisle
/s/ Vincent Langone Director January 25, 1999
- -------------------------
Vincent Langone
/s/ D.P. "Pat" Payne Director January 25, 1999
- -------------------------
D.P. "Pat" Payne
Director January 25, 1999
- -------------------------
Karl R. Wyss
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C> <C>
*3.1 -- Certificate of Incorporation of the Registrant
*3.2 -- Certificate of Amendment of Certificate of Incorporation of the Registrant
*3.3 -- Amended and Restated By-Laws of Brand Scaffold Services, Inc.
*4.1 -- Amended and Restated Certificate of Designations, Preferences and Rights of 14.5% Senior Exchangeable Preferred
Stock due 2008 (the "Preferred Stock")
*4.2 -- Amended and Restated Shareholders Agreement dated as of September 30, 1996 among DLJ Merchant Banking Partners,
L.P., DLJ International Partners, C.V., DLJ Offshore Partners, C.V., DLJ Merchant Banking Funding, Inc.,
Carlisle-Brand Investors, L.P., Rust Industrial Services Inc., DLJ Brand Holdings, Inc. ("Holdings"), Brand
Scaffold Services, Inc. and Certain Individuals
*4.3 -- Stock Option Agreement dated as of March 4, 1997 between Holdings and Carlisle Group, L.P.
*4.4 -- Indenture dated as of February 25, 1998 between the Company, and U.S. Trust Company of Texas, N.A., as Trustee,
relating to the Company's 10 1/4% Senior Notes due 2008 (the "Notes")
*4.5 -- Registration Rights Agreement, dated as of February 25, 1998, between the Company
and Donaldson Lufkin & Jenrette Securities Corporation ("DLJSC"), as initial purchaser, relating to the Notes
*4.6 -- Registration Rights Agreement dated as of March 2, 1998 by and between the
Company and DLJSC, relating to the Preferred Stock
4.7 -- Form of Indenture relating to the Company's 14.5% Junior Subordinated Exchange Debentures due 2008
5 -- Opinion of Davis Polk & Wardwell, Counsel of the Registrant, regarding the validity of the securities being
registered
*10.1 -- Credit Agreement dated as of September 30, 1996, among Brand Scaffold Services,
Inc., the Banks party thereto, DLJ Capital, as Syndication Agent, and Bank of America, as Administrative Agent
*10.2 -- Purchase Agreement dated as of February 25, 1998, by and between the Company and DLJSC, as initial purchaser,
relating to the Notes
*10.3 -- The Amended and Restated Transaction Agreement dated as of September 18, 1996 among DLJ Merchant Banking
Partners, L.P., DLJ International Partners, C.V., DLJ Offshore Partners, C.V., DLJ Merchant Banking Funding,
Inc., Carlisle Enterprises, L.P., Holdings, the Company, Brand Scaffold Builders, Inc., Brand Scaffold Rental &
Erection, Inc. 702569 Alberta Ltd., Rust International Inc., Rust Industrial Services Inc., Rust Scaffold
Services Inc., Rust Scaffold Builders Inc., and Rust Scaffold & Erection Inc.
*10.4 -- Employment Agreement dated as of October 1, 1996 between the Company and John M. Monter
*10.5 -- Employment Agreement dated as of July 29, 1996 between the Company and James "Marty" McGee
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C> <C>
*10.6 -- Employment Agreement dated as of July 29, 1996 between the Company and Ronald W. Moore
*10.7 -- Employment Agreement dated as of July 29, 1996 between the Company and Otto K. Knoll
*10.8 -- Offer Letter dated as of March 30, 1998 between the Company and Ian R. Alexander
12 -- Statement of Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
*21 -- Subsidiaries of the Registrant
23.1 -- Consent of Arthur Andersen LLP, independent public accountants
23.2 -- Consent of Davis Polk & Wardwell, counsel to the Registrant (included in Exhibit 5)
24 -- Powers of Attorney (included on signature page)
27 -- Financial Data Schedule
</TABLE>
- ----------
* Incorporated herein by reference to exhibit of the same number in the
Registrant's Registration Statement on Form S-1, Registration Number
333-56817.
<PAGE>
EXHIBIT 4.7
- -------------------------------------------------------------------------------
BRAND SCAFFOLD SERVICES, INC.
AND
[a trustee selected by
BRAND SCAFFOLD SERVICES INC.]
as
Trustee
---------------------------
Indenture
Dated as of [effective date of exchange]
---------------------------
$_____________
14.5% JUNIOR SUBORDINATED EXCHANGE DEBENTURES DUE 2008
- -------------------------------------------------------------------------------
1
<PAGE>
TABLE OF CONTENTS
----------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions......................................................................1
SECTION 1.02. Other Definitions................................................................5
SECTION 1.03. Incorporation by Reference of Trust Indenture Act................................5
SECTION 1.04. Rules of Construction............................................................6
ARTICLE 2
THE SECURITIES
SECTION 2.01. Form and Dating..................................................................6
SECTION 2.02. Execution and Authentication.....................................................7
SECTION 2.03. Registrar and Paying Agent.......................................................8
SECTION 2.04. Paying Agent to Hold Money in Trust..............................................8
SECTION 2.05. Securityholder Lists.............................................................8
SECTION 2.06. Transfer and Exchange............................................................8
SECTION 2.07. Replacement Securities..........................................................10
SECTION 2.08. Outstanding Securities..........................................................10
SECTION 2.09. Securities Held by the Company or an Affiliate..................................11
SECTION 2.10. Temporary Securities............................................................11
SECTION 2.11. Cancellation....................................................................11
SECTION 2.12. Defaulted Interest..............................................................11
ARTICLE 3
REDEMPTION
SECTION 3.01. Redemption; Notices to Trustees and DTC.........................................12
SECTION 3.02. Selection of Securities to Be Redeemed..........................................12
SECTION 3.03. Notice of Redemption............................................................12
SECTION 3.04. Effect of Notice of Redemption..................................................13
SECTION 3.05. Deposit of Redemption Price.....................................................13
SECTION 3.06. Securities Redeemed in Part.....................................................13
ARTICLE 4
COVENANTS
SECTION 4.01. Payment of Securities...........................................................14
SECTION 4.02. Maintenance of Office or Agency.................................................14
<PAGE>
PAGE
----
SECTION 4.03. SEC Reports.....................................................................14
SECTION 4.04. Compliance Certificate..........................................................15
SECTION 4.05. Stay, Extension and Usury Laws..................................................15
SECTION 4.06. Corporate Existence.............................................................15
SECTION 4.07. Notice of Default...............................................................16
SECTION 4.08. Change of Control...............................................................16
SECTION 4.09. Maintenance of Properties.......................................................18
SECTION 4.10. Payment of Taxes and Other Claims...............................................19
SECTION 4.11. Restrictions on Becoming an Investment Company..................................19
SECTION 4.12. Limitation on Dividends and Acquisition of Common Stock.........................19
ARTICLE 5
SUCCESSORS
SECTION 5.01. When Company May Merge, etc.....................................................20
SECTION 5.02. Successor Substituted...........................................................20
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default...............................................................21
SECTION 6.02. Acceleration....................................................................23
SECTION 6.03. Collection of Indebtedness and Suits for Enforcement by
Trustee...............................................................................23
SECTION 6.04. Other Remedies..................................................................24
SECTION 6.05. Waiver of Past Defaults.........................................................24
SECTION 6.06. Control by Majority.............................................................24
SECTION 6.07. Limitation on Suits.............................................................25
SECTION 6.08. Rights of Holders to Receive Payment............................................25
SECTION 6.09. Trustee May File Proofs of Claim................................................25
SECTION 6.10. Priorities......................................................................26
SECTION 6.11. Undertaking for Costs...........................................................26
ARTICLE 7
TRUSTEE
SECTION 7.01. Duties of Trustee...............................................................27
SECTION 7.02. Rights of Trustee...............................................................28
SECTION 7.03. Individual Rights of Trustee....................................................28
SECTION 7.04. Trustee's Disclaimer............................................................28
SECTION 7.05. Notice of Defaults..............................................................29
SECTION 7.06. Reports by Trustee to Holders...................................................29
ii
<PAGE>
PAGE
----
SECTION 7.07. Compensations and Indemnity.....................................................29
SECTION 7.08. Replacement of Trustee..........................................................30
SECTION 7.09. Successor Trustee by Merger, etc................................................31
SECTION 7.10. Eligibility; Disqualification...................................................31
SECTION 7.11. Preferential Collection of Claims Against Company...............................31
SECTION 7.12. Conflicting Interests...........................................................31
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations ...........................................32
SECTION 8.02. Application of Trust Money......................................................33
SECTION 8.03. Repayment to Company............................................................33
SECTION 8.04. Reinstatement...................................................................33
ARTICLE 9
AMENDMENTS
SECTION 9.01. Without Consent of Holders......................................................34
SECTION 9.02. With Consent of Holders.........................................................34
SECTION 9.03. Compliance with Trust Indenture Act.............................................35
SECTION 9.04. Revocation and Effect of Consents...............................................35
SECTION 9.05. Notation on or Exchange of Securities...........................................36
SECTION 9.06. Trustee Protected...............................................................36
ARTICLE 10
SUBORDINATION
SECTION 10.01. Agreement to Subordinate.......................................................37
SECTION 10.02. Certain Definitions............................................................37
SECTION 10.03. Liquidation; Dissolution; Bankruptcy...........................................38
SECTION 10.04. Company Not to Make Payments with Respect to
Securities in Certain Circumstances..........................................38
SECTION 10.05. Acceleration of Securities.....................................................39
SECTION 10.06. When Distribution Must Be Paid Over............................................39
SECTION 10.07. Notice by Company..............................................................40
SECTION 10.08. Subrogation....................................................................40
SECTION 10.09. Subrogation May Not Be Impaired by Company.....................................40
SECTION 10.10. Distribution or Notice to Representative.......................................40
SECTION 10.11. Rights of Trustee and Paying Agent.............................................40
SECTION 10.12. Officers' Certificate..........................................................41
iii
<PAGE>
PAGE
----
SECTION 10.13. Obligation of Company Unconditional............................................41
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls...................................................42
SECTION 11.02. Notices........................................................................42
SECTION 11.03. Communication by Holders with Other Holders....................................44
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.............................44
SECTION 11.05. Statements Required in Certificate or Opinion..................................44
SECTION 11.06. Rules by Trustee and Agents....................................................45
SECTION 11.07. Legal Holidays.................................................................45
SECTION 11.08. No Recourse Against Others.....................................................45
SECTION 11.09. Duplicate Originals............................................................45
SECTION 11.10. Governing Law..................................................................45
SECTION 11.11. No Adverse Interpretation of Other Agreements..................................46
SECTION 11.12. Successors.....................................................................46
SECTION 11.13. Separability...................................................................46
SECTION 11.14. Table of Contents, Headings, etc...............................................46
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
CROSS-REFERENCE TABLE
TIA Section Indenture Section
- ----------- -----------------
<S> <C> <C>
310 (a) (1)..................................................... 7.10
(a) (2)..................................................... 7.10
(a) (3)..................................................... N.A.
(a) (4)..................................................... N.A.
(b)......................................................... 7.08; 7.10; 7.12;11.02
(c)......................................................... N.A.
311 (a)......................................................... 7.11
(b)......................................................... 7.11
(c)......................................................... N.A.
312 (a)......................................................... 2.05
(b)......................................................... 11.03
(c)......................................................... 11.03
313 (a)......................................................... 7.06
(b) (1)..................................................... N.A.
(b) (2)..................................................... N.A.
(c)......................................................... 7.06; 11.02
(d)......................................................... 7.06
314 (a)......................................................... 4.03; 11.02
(b)......................................................... N.A.
(c) (1)..................................................... 11.04
(c) (2)..................................................... 11.04
(c) (3)..................................................... N.A.
(d)......................................................... N.A.
(e)......................................................... 11.05
(f)......................................................... N.A.
315 (a)......................................................... 7.01(b)
(b)......................................................... 7.05; 11.02
(c)......................................................... 7.01 (a)
(d)......................................................... 7.01 (c)
(e)......................................................... 6.11
316 (a) (last sentence)......................................... 2.09
(a) (1) (A)................................................. 6.06
(a) (1) (B)................................................. 6.05
(a) (2)..................................................... N.A.
(b)......................................................... 6.08
(c)......................................................... N.A.
317 (a) (01).................................................... 6.03
(a) (2)..................................................... 6.09
(b)......................................................... 2.04
318 (a)......................................................... 11.01
</TABLE>
v
<PAGE>
- -------------
N.A. means Not Applicable.
This cross-reference table does not constitute a part of the Indenture.
vi
<PAGE>
INDENTURE dated as of [effective date of exchange], between BRAND
SCAFFOLD SERVICES, INC., a Delaware corporation (the "COMPANY"), and [a trustee
selected by the Company], as trustee (the "TRUSTEE").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the holders of the Company's 14.5% Junior
Subordinated Exchange Debentures due 2008 (the "SECURITIES").
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"AFFILIATE" shall have the meaning ascribed to such term in the
Shareholders Agreement.
"AGENT" means any Registrar, Paying Agent or co-Registrar.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or
any committee of the Board authorized to act for it hereunder.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Corporate Secretary or an Assistant Secretary of the Company to have been duly
adopted by the Board of Directors and to be in full force and effect on the
date of such certification, and delivered to the Trustee.
"CERTIFICATE OF DESIGNATIONS" means the Certificate of Designations,
Preferences and Rights of the 14.5% Senior Exchangeable Preferred Stock.
"CHANGE OF CONTROL" means the occurrence of any of the following
events: (i) any person (including any entity or group deemed to be a "person"
under Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), other than any
person or group comprised solely of the Initial Holders, has become the
beneficial owner, by way of merger, consolidation or otherwise, of 40% or more
of the voting power of all classes of voting securities of the Company or of
DLJ Brand Holdings, Inc. and such person or group has become the beneficial
owner of a greater percentage of the voting power of all classes of voting
securities of the Company or of DLJ Brand Holdings, Inc. than that beneficially
owned by the Initial Holders; (ii) a sale or transfer of all or substantially
all of the assets of the Company or of DLJ Brand Holdings, Inc. to any person
or group (other than any group consisting solely of the Initial Holders or
their Affiliates) has been
1
<PAGE>
consummated; or (iii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors of the
Company or of DLJ Brand Holdings, Inc. (together with any new directors whose
election was approved by a vote of a majority of the directors then still in
office, who either were directors at the beginning of such period or whose
election or nomination for the election was previously so approved) cease for
any reason to constitute a majority of the directors of the Company or of DLJ
Brand Holdings, Inc. as the case may be, then in office, other than as a result
of election and removal of directors pursuant to the provisions of the
Certificate of Designations or the Shareholders Agreement governing the
election and removal of directors.
"CLOSING DATE" shall have the meaning ascribed to such term in the
Shareholders Agreement.
"COMMON STOCK" includes any stock of any class of the Company which
has no preference in respect of dividends or of amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Company and which is not subject to redemption by the Company.
"COMPANY" means the party named as such above and any other obligor
until a successor replaces it pursuant to the applicable provision hereof and
thereafter means such successor.
"COMPANY REQUEST" or "COMPANY ORDER" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Chief
Executive Officer, President or a Vice President, and by its Chief Financial
Officer, its Corporate Secretary or an Assistant Secretary, and delivered to
the Trustee.
"CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of the
Trustee specified in Section 11.02 or such other address as the Trustee may
give notice of to the Company.
"CREDIT AGREEMENT" means the Credit Agreement dated September 30, 1996
among the Company as Borrower, various financial institutions as Lenders, DLJ
Capital Funding, Inc., as Syndication Agent for the Lenders and Bank of America
National Trust & Savings Association as the Administrative Agent for the
Lenders, as amended from time to time.
"DEFAULT" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
2
<PAGE>
"DEPOSITARY" means, with respect to Securities issuable in whole or in
part in the form of one or more Global Securities, a clearing agency registered
under the Exchange Act that is designated to act as Depositary for such
Securities.
"DTC" means The Depository Trust Company.
"ELIGIBLE INSTITUTION" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency and whose debt is rated at the highest rating obtainable from
Standard & Poor's Corporation ("S&P") or Moody's Investor Services, Inc.
("MOODY'S") at the time as of which any investment or rollover herein is made.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"GLOBAL SECURITY" means a Security that evidences all or part of the
Securities of any series and bears the legend set forth in Exhibit B.
"GOVERNMENTAL SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America, for the payment of which the full
faith and credit of the United States is pledged.
"HOLDER" or "SECURITYHOLDERS" means a person in whose name a Security
is registered on the Registrar's books.
"INDENTURE" means this Indenture as amended from time to time.
"INITIAL HOLDERS" means the Shareholders (as of the Closing Date), any
employees or consultants who become Shareholders by purchasing the 14.5% Senior
Exchangeable Preferred Stock pursuant to the DLJ Brand Holdings, Inc. Key Team
Member Direct Investment Program, and, in each case, their respective Permitted
Transferees, each as defined in the Shareholders Agreement.
"INITIAL PUBLIC OFFERING" shall have the meaning ascribed to such term
in the Shareholders Agreement.
"MATURITY," when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
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declaration of acceleration, call for redemption, occurrence of any Repurchase
Date or otherwise.
"OFFICERS" means the Chief Executive Officer, the President, any Vice
President, the Chief Financial Officer or the Corporate Secretary of the
Company.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers or
by an Officer and [insert name of alternate signatory] of the Company.
"OPINION OF COUNSEL" means a written opinion from legal counsel who
may be an employee of or counsel for the Company or other counsel reasonably
acceptable to the Trustee.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or other agency or political subdivision thereof.
"PRINCIPAL" of a debt security (including, without limitation, any
Security) means the principal of the security plus the premium, if any, on the
security.
"SEC" means the Securities and Exchange Commission.
"SECURITIES" means the Securities described above issued under this
Indenture.
"14.5% SENIOR EXCHANGEABLE PREFERRED STOCK" means the 14.5% Senior
Exchangeable Preferred Stock due 2008 of the Company.
"SHAREHOLDERS" shall have the meaning ascribed to such term in the
Shareholders Agreement.
"SHAREHOLDERS AGREEMENT" means the Shareholders Agreement dated as of
September 30, 1996 among the Company, DLJ Brand Holdings, Inc., DLJ Merchant
Banking Partners, L.P., DLJ International Partners, C.V., DLJ Offshore
Partners, C.V., DLJ Merchant Banking Funding Inc., Carlisle-Brand Investors,
L.P., Rust Industrial Services Inc., and certain other persons named therein.
"STATED MATURITY," when used with respect to any Security or any
installment of principal thereof or interest thereon means the date specified
in such Security as the fixed date on which the principal of such Security or
such installment of principal or interest is due and payable.
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"SUBSIDIARY" means (i) a corporation a majority of whose capital stock
with voting power, under ordinary circumstances, to elect directors is at the
time, directly or indirectly, owned by the Company, by one or more subsidiaries
of the Company or by the Company and one or more subsidiaries thereof or (ii)
any other person (other than a corporation) in which the Company, one or more
subsidiaries thereof or the Company and one or more subsidiaries thereof,
directly or indirectly, at the date of determination thereof have at least
majority ownership interest.
"TIA" means the Trust Indenture Act of 1939, as amended (15 U.S. Code
(S)(S) 77aaa-77bbbb) as in effect on the date of this Indenture, except as
provided in Section 9.03.
"TRUSTEE" means the party named as such in this Indenture until a
successor replaces it and thereafter means the successor.
"TRUST OFFICER" means any officer of the Trustee assigned by the
Trustee to administer its corporate trust matters.
SECTION 1.02. Other Definitions.
Term Defined in Section
- ---- ------------------
"BUSINESS DAY"................................................ 11.07
"EVENT OF DEFAULT"............................................ 6.01
"EXCHANGE ACT"................................................ 4.03
"LEGAL HOLIDAY"............................................... 11.07
"PAYING AGENT"................................................ 2.03
"REGISTRAR"................................................... 2.03
"REPRESENTATIVE".............................................. 10.02
"REPURCHASE DATE"............................................. 4.08
"REPURCHASE PRICE"............................................ 4.08
"REPURCHASE RIGHT"............................................ 4.08
"REPURCHASE RIGHT NOTICE"..................................... 4.08
"SENIOR INDEBTEDNESS"......................................... 10.02
"U.S. GOVERNMENT OBLIGATIONS"................................. 8.01
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
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"INDENTURE SECURITIES" means the Securities.
"INDENTURE SECURITYHOLDER" means a Securityholder.
"INDENTURE TO BE QUALIFIED" means this Indenture.
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee.
"OBLIGOR" on the indenture securities means the Company.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the
TIA have the meanings so assigned to them.
SECTION 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP in effect on the date hereof;
(3) "OR" is not exclusive;
(4) words in the singular include the plural and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) "HEREIN", "HEREOF" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or other
Subdivision.
ARTICLE 2
THE SECURITIES
SECTION 2.01. Form and Dating.
The Securities and the Trustee's certificate of authentication shall
be substantially in the form set forth in Exhibit A (with such appropriate
insertions,
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omissions, substitutions and other variations as are required or permitted by
this Indenture), which Exhibit A is incorporated in and forms a part of this
Indenture. The Securities may have notations, legends or endorsements required
by law, stock exchange rule or usage. Each Security shall be dated the date of
its authentication.
The definitive Securities shall be printed, lithographed or engraved
or produced by any combination of these methods on steel engraved borders or
may be produced in any other manner permitted by the rules of any securities
exchange on which the Securities may be listed, all as determined by the
officers executing such Securities, as evidenced by their execution thereof.
SECTION 2.02. Execution and Authentication.
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated, the Security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Security has been authenticated under this Indenture.
The Trustee shall authenticate Securities for original issue in the
aggregate principal amount of up to [insert aggregate liquidation preference
for outstanding shares of 14.5% Senior Exchangeable Preferred Stock at date of
exchange], upon a written order of the Company signed by two Officers or by an
Officer and [insert name of alternate signatory] of the Company. Each order
shall specify the amount of Securities to be authenticated and the date on
which the original issue of Securities is to be authenticated. The aggregate
principal amount of Securities outstanding at any time may not exceed the
amount of Securities issued pursuant to this paragraph except as provided in
Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. An authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company
or an Affiliate.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
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SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain in the Borough of Manhattan, The City of
New York, an office or agency where Securities may be presented for
registration of transfer or for exchange ("REGISTRAR") and an office or agency
where Securities may be presented for payment ("PAYING AGENT"). The Registrar
shall keep a register of the Securities and of their transfer and exchange. The
Company may appoint or change one or more co-registrars and one or more
additional paying agents without notice and may act in any such capacity on its
own behalf. The term "PAYING AGENT" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall
notify the Trustee of the name and address of any Agent not a party to this
Indenture. If the Company fails to maintain a Registrar or Paying Agent, the
Trustee shall act as such.
The Company initially appoints the Trustee as Paying Agent and
Registrar.
SECTION 2.04. Paying Agent to Hold Money in Trust.
Each Paying Agent shall hold in trust for the benefit of the
Securityholders or the Trustee all moneys held by such Paying Agent for the
payment of principal of or interest on the Securities, and shall notify the
Trustee of any default by the Company in making any such payment. While any
such default continues, the Trustee may require a Paying Agent to pay all money
held by it to the Trustee. The Company at any time may require a Paying Agent
to pay all money held by it to the Trustee. Upon payment over to the Trustee,
such Paying Agent shall have no further liability for the money. If the Company
acts as Paying Agent, it shall segregate and hold as a separate trust fund all
money held by it as Paying Agent.
SECTION 2.05. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the Company shall furnish
to the Trustee on or before each interest payment date and at such other times
as the Trustee may request in writing a list, in such form and as of such date
as the Trustee may reasonably require, of the names and addresses of
Securityholders.
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SECTION 2.06. Transfer and Exchange.
Where Securities are presented to the Registrar or a co-Registrar with
a request to register the transfer or to exchange them for an equal principal
amount of Securities of other authorized denominations, the Registrar shall
register the transfer or make the exchange if the requirements of Section 8-401
of the New York Uniform Commercial Code are met. To permit registrations of
transfer and exchanges, the Trustee shall authenticate Securities at the
Registrar's request. The Company or the Trustee, as the case may be, shall not
be required (a) to issue, authenticate, register the transfer of or exchange
any Security during a period beginning at the opening of business 15 days
before the mailing of a notice of redemption of the Securities selected for
redemption under Section 3.02 and ending at the close of business on the day of
such mailing, or (b) to register the transfer of or exchange any Security so
selected for redemption, in whole or in part, except the unredeemed portion of
Securities being redeemed in part. No service charge shall be made for any
registration of transfer or exchange of Securities, but the Company may require
a Holder to, among other things, furnish appropriate endorsements and transfer
documents and pay a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any transfer, registration of
transfer or exchange of Securities, other than exchanges pursuant to Section
2.10, 3.06 or 9.05 not involving any transfer.
The provisions of clauses (1), (2), (3) and (4) below shall apply only
to Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global Security or
a nominee thereof and delivered to such Depositary or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Indenture.
(2) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and no
transfer of a Global Security in whole or in part may be registered, in the
name of any person other than the Depositary for such Global Security or a
nominee thereof unless (A) such Depositary (i) has notified the Company that it
is unwilling or unable to continue as Depositary for such Global Security or
(ii) has ceased to be a clearing agency registered under the Exchange Act or
(B) there shall have occurred and be continuing an Event of Default with
respect to such Global Security.
(3) Subject to clause (2) above, any exchange of a Global Security for
other Securities may be made in whole or in part, and all Securities issued in
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exchange for a Global Security or any portion thereof shall be registered in
such names as the Depositary for such Global Security shall direct.
(4) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Section, Section 2.07, 2.10, 3.06 or 9.05 or
otherwise, shall be authenticated and delivered in the form of, and shall be, a
Global Security, unless such Security is registered in the name of a person
other than the Depositary for such Global Security or a nominee thereof.
SECTION 2.07. Replacement Securities.
If the Holder of a Security claims that the Security has been
mutilated, lost, destroyed or wrongfully taken, the Company shall issue and the
Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the New York Uniform Commercial Code are met and, in the case
of a mutilated Security, such mutilated Security is surrendered to the Trustee.
If required by the Trustee or the Company, an indemnity bond must be sufficient
in the judgment of both to protect the Company, the Trustee or any Agent from
any loss which any of them may suffer if a Security is replaced. The Company or
the Trustee may charge for its expenses in replacing a Security.
In case any such mutilated, destroyed or wrongfully taken Security has
become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security when due.
Every replacement Security is an additional obligation of the Company.
SECTION 2.08. Outstanding Securities.
Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those canceled by it, those delivered
to it for cancellation and those described in this Section as not outstanding.
A Security does not cease to be outstanding because the Company or one of its
subsidiaries or Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it, or a court
holds, that the replaced Security is held by a bona fide purchaser.
If the Paying Agent (other than the Company) holds on a redemption
date, repurchase date or maturity date money sufficient to pay Securities
payable on that
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date, then on and after that date, such Securities shall be deemed to be no
longer outstanding and interest on them shall cease to accrue.
SECTION 2.09. Securities Held by the Company or an Affiliate.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company or a subsidiary or an Affiliate shall be disregarded, except
that for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent, only Securities which the
Trustee actually knows are so owned shall be so disregarded.
SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary
Securities. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate definitive Securities in exchange for temporary
Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration
of transfer, exchange, payment or cancellation and may destroy canceled
Securities and deliver a certificate of any such destruction to the Company.
The Company may not issue new Securities to replace Securities that it has paid
or delivered to the Trustee for cancellation.
SECTION 2.12. Defaulted Interest.
If and to the extent the Company defaults in a payment of interest on
the Securities, it shall pay the defaulted interest in any lawful manner plus,
to the extent not prohibited by applicable statute or case law, interest
payable on the defaulted interest. It may pay the defaulted interest to the
persons who are Securityholders on a subsequent special record date. The
Company shall fix such record date and payment date. At least 15 days before
the record date, the Company shall mail to Securityholders a notice that states
the record date, payment date and amount of interest to be paid.
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ARTICLE 3
REDEMPTION
SECTION 3.01. Redemption; Notices to Trustees and DTC.
If the Company wants to redeem Securities pursuant to paragraph 5 of
the Securities, it shall notify the Trustee at least 15 days prior to the date
on which the notice of redemption is mailed to each Holder (unless a shorter
notice period shall be satisfactory to the Trustee) of the redemption date and
the principal amount of Securities to be redeemed.
If the Company wants to redeem Securities pursuant to paragraph 5 of
the Securities and DTC is a Securityholder, the Company shall notify DTC at
least 30 days prior to the redemption date if the operational arrangements of
DTC in effect at the time of any such redemption require such notice period.
SECTION 3.02. Selection of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the Trustee shall
select the Securities to be redeemed on either a pro rata basis or by lot or
such other method as the Trustee shall deem fair and equitable, but in any
event, in such manner as complies with applicable legal and stock exchange
requirements. The Trustee shall make the selection from Securities outstanding
not previously called for redemption. The Trustee may select for redemption
portions of the principal of Securities that have denominations larger than
$1,000. Securities and portions of them it selects shall be in amounts of
$1,000 or whole multiples of $1,000. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called
for redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date,
the Company shall mail by first-class mail, postage prepaid, a notice of
redemption to each Holder whose Securities are to be redeemed.
The notice shall identify the Securities and the principal amount
thereof to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price (including the amount of accrued and
unpaid interest, if any, to be paid on the Securities called
for redemption);
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(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(5) that interest on Securities called for redemption ceases to
accrue on and after the redemption date; and
(6) the CUSIP number of the Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense.
SECTION 3.04. Effect of Notice of Redemption.
Once a notice of redemption is mailed, Securities called for
redemption become due and payable on the redemption date at the redemption
price and, on and after such date (unless the Company shall default in the
payment of the redemption price), such Securities shall cease to bear interest.
Upon surrender to the Paying Agent, such Securities shall be paid at the
redemption price plus accrued interest, if any, to the redemption date.
SECTION 3.05. Deposit of Redemption Price.
On or before 10:00 a.m., Eastern Time, on the redemption date, the
Company shall deposit with the Paying Agent money in funds immediately
available on the redemption date sufficient to pay the redemption price of and
accrued interest on all Securities to be redeemed on that date.
SECTION 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Trustee
shall authenticate for the Holder a new Security equal in principal amount to
the unredeemed portion of the Security surrendered.
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ARTICLE 4
COVENANTS
SECTION 4.01. Payment of Securities.
The Company shall pay the principal of and interest, if any, on the
Securities on the dates and in the manner provided in the Securities. Principal
and interest, if any, shall be considered paid on the date due if the Paying
Agent holds on that date money sufficient to pay all principal and interest, if
any, then due.
SECTION 4.02. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, the City of New
York, an office or agency where Securities may be surrendered for registration
of transfer or exchange and where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change in
the location, of such office or agency. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company will
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
SECTION 4.03. SEC Reports.
The Company shall file with the Trustee within 30 days after it files
them with the SEC copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) which the Company is
required to file with the SEC pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"). The Company also shall
comply with the other provisions of TIA (S) 314(a).
So long as the Securities remain outstanding, the Company shall cause
its annual reports to shareholders and any other financial reports furnished by
it to
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shareholders generally to be mailed to the Holders at their addresses appearing
in the register of Securities maintained by the Registrar.
SECTION 4.04. Compliance Certificate.
The Company shall deliver to the Trustee within 120 days after the end
of each fiscal year of the Company an Officers' Certificate stating whether or
not the signatories know of any Default by the Company in performing any of its
obligations under this Indenture or the Securities. If they do know of any such
Default, the certificate shall describe the Default and its status. One of the
officers signing such certificate shall be the principal executive, principal
financial or principal accounting officer of the Company.
SECTION 4.05. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it
may lawfully do so) hereby expressly waives all benefit or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 4.06. Corporate Existence.
Subject to Article 5, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and the corporate existence of each subsidiary in accordance with the
respective organizational documents of each subsidiary and the rights (charter
and statutory), licenses and franchises to the Company and its subsidiaries;
provided, however, that the Company shall not be required to preserve any such
right, license or franchise, or the corporate existence of any subsidiary, if
in the judgment of the Board of Directors, (i) such preservation or existence
is not material to the conduct of business of the Company and (ii) the loss of
such right, license or franchise or the dissolution of such subsidiary does not
have a material adverse impact on the Holders.
SECTION 4.07. Notice of Default.
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In the event that any Default under Section 6.01 hereof shall occur,
the Company will give prompt written notice of such Default to the Trustee.
SECTION 4.08. Change of Control.
(a) In the event that there shall occur a Change of Control, each
Holder shall have the right (the "REPURCHASE RIGHT") upon receipt of a
Repurchase Right Notice (as defined below), at such Holder's option, to require
the Company to repurchase any Security of such Holder or any portion of the
principal amount thereof which is $1,000 or an integral multiple of $1,000, on
the date (the "REPURCHASE DATE") specified by the Company in its Repurchase
Right Notice, which date shall not be later than 45 days after the date of the
Repurchase Right Notice, or, if such 45th day is a Legal Holiday, the next
subsequent day which is not a Legal Holiday, unless otherwise required by
applicable law, at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to and including the
Repurchase Date (the "REPURCHASE PRICE"). The right to require the repurchase
of Securities shall not continue after a discharge of the Company from its
obligations with respect to the Securities in accordance with Article 8.
(b) Within 30 days after the occurrence of a Change of Control, the
Company, or, at the request of the Company and at the Company's expense, the
Trustee, shall give notice of the occurrence of the Change of Control and of
the Repurchase Right set forth herein (the "REPURCHASE RIGHT NOTICE") by
first-class mail, postage prepaid, to each Holder at such Holder's address
appearing in the registry books of the Company kept by the Registrar. The
Company shall deliver a copy of the Repurchase Right Notice to the Trustee. The
Company shall also place such notice in a financial newspaper of general
circulation in New York City. No failure of the Company to give the foregoing
notice shall limit any such Holder's right to exercise a Repurchase Right. Any
such notice shall state that a Change of Control has occurred and that such
Holder has the right to require the Company to repurchase such Holder's
Securities and shall contain all instructions and materials necessary to enable
such Holders to deliver Securities pursuant to the Repurchase Right including,
without limitation, the following:
(1) the Repurchase Date;
(2) the date by which the Repurchase Right must be exercised;
(3) the Repurchase Price;
(4) that Securities are to be surrendered for payment of the
Repurchase Price; and
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(5) that the exercise of the Repurchase Right is irrevocable,
unless the Company shall default in making the repurchase
payment when due, in which case Holders who elect to exercise
the Repurchase Right will retain the right to convert
Securities submitted for repurchase until the close of business
on the date such default is cured and such Security is
repurchased.
(c) To exercise a Repurchase Right, a Holder shall deliver to the
Company (if it is acting as its own Paying Agent) or to a Paying Agent
designated by the Company for such purpose in the notice referred to above on
or before the 30th day after the date of the Repurchase Right Notice, or, if
such day is a Legal Holiday, the next subsequent day which is not a Legal
Holiday, (i) written notice (which notice shall be deemed to be delivered when
received) of the Holder's exercise of such right, which notice shall set forth
the name of the Holder, the principal amount of Securities (or portions
thereof) to be repurchased, a statement that an election to exercise the
Repurchase Right is being made thereby and (ii) the Securities with respect to
which the Repurchase Right is being exercised, duly endorsed for transfer to
the Company, and the Holder of such Securities shall be entitled to receive
from the Company (if it is acting as its own Paying Agent) or such Paying Agent
a nontransferable receipt of deposit evidencing such deposit. Such written
notice shall be irrevocable, except as provided in Section 4.08(b) above. If
the Repurchase Date is between a regular record date for the payment of
interest and the next succeeding interest payment date, any Security to be
repurchased must be accompanied by funds equal to the interest payable on such
succeeding interest payment date on the principal amount to be repurchased and
the interest on the principal amount of the Security being repurchased will be
paid on such next succeeding interest payment date to the registered holder of
such Security on the immediately preceding record date. A Security repurchased
on an interest payment date need not be accompanied by any such payment, and
the interest on the principal amount of the Security being repurchased will be
paid on such interest payment date to the registered holder of such Security on
the immediately preceding record date.
(d) In the event a Repurchase Right shall be exercised in accordance
with the terms hereof, the Company shall pay or cause to be paid the applicable
Repurchase Price with respect to the Securities as to which the Repurchase
Right shall have been exercised to the Holder on the Repurchase Date.
(e) Prior to a Repurchase Date, the Company shall deposit with the
Trustee or with a Paying Agent (or if the Company is acting as its own Paying
Agent, segregate and hold in trust in accordance with Section 2.04) an amount
of
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money sufficient to pay the Repurchase Price payable in respect of all of the
Securities which are to be repurchased on that date.
(f) Both the notice of the Company and the notice of the Holder
having been given as specified in this Section 4.08, the Securities so to be
repurchased shall, on the Repurchase Date become due and payable at the
Repurchase Price applicable thereto and from and after such date (unless the
Company shall default in the payment of the Repurchase Price) such Securities
shall cease to bear interest. Upon surrender of any such Security for
repurchase in accordance with said notice, such Security shall be paid by the
Company at the Repurchase Price. If any Security shall not be paid upon
surrender thereof for repurchase, the principal shall, until paid, bear
interest from the Repurchase Date at the rate borne by such Security.
(g) Any Security which is to be submitted for repurchase only in part
shall be delivered pursuant to this Section 4.08 (with, if the Company or the
Trustee so requires, due endorsement by, or a written instrument of transfer in
form satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing) and the Company shall
execute, and the Trustee shall authenticate and make available for delivery to
the Holder of such Security without any service charge, a new Security or
Securities, of any authorized denomination as requested by such Holder, of the
same tenor and in aggregate principal amount equal to and in exchange for the
portion of the principal of such Security not submitted for repurchase.
(h) If any repurchase pursuant to the foregoing provisions
constitutes an "ISSUER TENDER OFFER" as defined in Rule 13e-4 under the
Exchange Act, the Company will comply with the requirements of Rule 13e-4, Rule
14e-1 and any other tender offer rules under the Exchange Act which then may be
applicable, including the filing of an Issuer Tender Offer Statement on
Schedule 13E-4 with the SEC and the furnishing of certain information contained
therein to the Holders.
SECTION 4.09. Maintenance of Properties.
The Company will cause all properties used or useful in the conduct of
its business or the business of any subsidiary to be maintained and kept in
good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing the
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operation or maintenance of any of such properties if such discontinuance is,
in the judgment of the Company, desirable in the conduct of its business or the
business of any subsidiary and not disadvantageous in any material respect to
the Holders.
SECTION 4.10. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any subsidiary or
upon the income, profits or property of the Company or any subsidiary, and (2)
all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a lien upon the property of the Company or any subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 4.11. Restrictions on Becoming an Investment Company.
The Company shall not become an investment company within the meaning
of the Investment Company Act of 1940 as such statute and the regulations
thereunder and any successor statute or regulations thereto may from time to
time be in effect.
SECTION 4.12. Limitation on Dividends and Acquisition of Common
Stock.
The Company will not declare or pay any dividend or make any
distribution on its Common Stock or other capital stock of the Company (other
than dividends or distributions payable in the Company's Common Stock or
options, warrants or other rights to acquire, subscribe for or purchase the
Company's Common Stock) or purchase, redeem or otherwise acquire for value any
shares of its Common Stock or other capital stock of the Company, whether in
cash or property or in obligations of the Company, if, at the time of such
declaration, payment, distribution, purchase, redemption or other acquisition
or, after giving effect thereto, an Event of Default shall have occurred and be
continuing or a Default that with notice or lapse of time or both would
constitute an Event of Default shall have occurred and be continuing.
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ARTICLE 5
SUCCESSORS
SECTION 5.01. When Company May Merge, etc.
The Company shall not consolidate with or merge into, or directly or
indirectly transfer or lease all or substantially all of its assets to, any
person and the Company shall not permit any person to consolidate with or merge
into the Company or transfer all or substantially all of its properties and
assets to the Company unless:
(1) the person formed by or surviving any such consolidation or
merger (if other than the Company), or to which such sale or
conveyance shall have been made, is a person organized and existing
under the laws of the United States, any State thereof or the District
of Columbia;
(2) the person formed by or surviving any such consolidation or
merger (if other than the Company), or to which such sale or
conveyance shall have been made, assumes by supplemental indenture all
the obligations of the Company under the Securities and this
Indenture;
(3) immediately before and immediately after giving effect to such
transaction no Default or Event of Default shall have occurred and be
continuing; and
(4) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with this Article and
that all conditions precedent herein provided for relating to such
transaction have been complied with.
The Company shall deliver to the Trustee prior to the consummation of
the proposed transaction an Officers' Certificate to the foregoing effect and
an Opinion of Counsel stating that the proposed transaction and such
supplemental indenture comply with this Indenture.
SECTION 5.02. Successor Substituted.
Upon any consolidation or merger or transfer or lease of all or
substantially all of the assets of the Company in accordance with Section 5.01,
the successor person formed by such consolidation or into which the Company is
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merged or to which such transfer or lease is made shall succeed to, and be
substituted for, and may exercise every right and power of, and shall assume
every duty and obligation of, the Company under this Indenture with the same
effect as if such successor corporation had been named as the Company herein.
When the successor corporation assumes all obligations of the Company
hereunder, all obligations of the predecessor corporation shall terminate.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default.
An "EVENT OF DEFAULT" occurs if:
(1) the Company defaults in the payment of interest on any Security
when the same becomes due and payable and the default continues for a
period of 15 days, whether or not such payment shall be prohibited by
the provisions of Article 10 hereof;
(2) the Company defaults in the payment of the principal of any
Security when the same becomes due and payable at Maturity, whether or
not such payment shall be prohibited by the provisions of Article 10
hereof;
(3) the Company fails to comply with any of its other agreements in
the Securities or this Indenture and the default continues for the
period and after the notice specified below;
(4) an event of default shall have occurred and be continuing under
any mortgage, indenture, instrument or other evidence of indebtedness
under which there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed by the Company or any
subsidiary, whether such indebtedness now exists or is created
hereafter, which event of default results in the acceleration of such
indebtedness prior to its express maturity and such acceleration is
not rescinded or indebtedness is not paid or discharged for the period
and after the notice specified below and the principal amount of such
indebtedness, together with the principal amount of any other such
indebtedness the maturity of which has been accelerated, aggregates
$15 million or more;
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(5) a final judgment or judgments for the payment of money in excess
of $15 million in the aggregate are rendered against the Company or a
subsidiary and such judgment or judgments remain unstayed, unsatisfied
or undischarged for the period and after the notice specified below;
(6) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or (B) a decree or
order adjudging the Company bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company under any
applicable Federal or State law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official
of the Company or of any substantial part of its property, or ordering
the winding up or liquidation of its affairs, and the continuance of
any such decree or order for relief or any such other decree or order
unstayed and in effect for a period of 60 consecutive days; or
(7) the commencement by the Company of a voluntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding
to be adjudicated bankrupt or insolvent, or the consent by it to the
entry of a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding
against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable Federal or State
law, or the consent by it to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official
of the Company or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally
as they become due, or the taking of corporate action by the Company
in furtherance of any such action.
A default under clause (3), (4) or (5) is not an Event of Default
until the Trustee or the Holders of at least 25% in principal amount of the
Securities notify the Company of the default and the Company does not cure the
default within 30 days after receipt of the notice. The notice must specify the
default, demand that it be remedied and state that the notice is a "NOTICE OF
DEFAULT". If the Holders of
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25% in principal amount of the outstanding Securities request the Trustee to
give such notice on their behalf, the Trustee shall do so.
The Trustee shall not be deemed to have notice of any Default
hereunder unless it shall have actual knowledge of such Default or it shall
have received written notice thereof making specific reference to such Default
as a Default.
SECTION 6.02. Acceleration.
If an Event of Default (other than an Event of Default specified in
Section 6.01(6) or (7)) occurs and is continuing, the Trustee by notice to the
Company, or the Holders of at least 25% in principal amount of the Securities
by notice to the Company and the Trustee, may declare the principal of and
accrued interest on all the Securities to be immediately due and payable. Upon
such declaration such principal and interest shall be due and payable
immediately. If an Event of Default specified in Section 6.01(6) or (7) occurs,
all unpaid principal and accrued interest on the Securities then outstanding
shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Securityholder. The
Holders of a majority in principal amount of the Securities by notice to the
Trustee may rescind an acceleration and its consequences if the rescission
would not conflict with any judgment or decree and if all existing Events of
Default have been cured or waived except nonpayment of principal or interest
that has become due solely because of the acceleration.
SECTION 6.03. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if
(1) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues
for a period of 15 days, or
(2) default is made in the payment of the principal of any Security
at the Maturity thereof, the Company will, upon demand of the Trustee,
pay to it, for the benefit of the Holders of such Securities, the
whole amount then due and payable on such Securities for principal and
interest and, to the extent that payment of such interest shall be
legally enforceable, interest on any overdue principal and on any
overdue interest, at the rate or rates prescribed therefor in such
Securities, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including
the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
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If an Event of Default with respect to Securities occurs and is
continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the holders of Securities by such appropriate
judicial proceedings as the Trustee shall deem most effectual to protect and
enforce any such rights, whether for the specific enforcement of any covenant
or agreement in this Indenture or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy.
SECTION 6.04. Other Remedies.
Notwithstanding any other provision of this Indenture, if an Event of
Default occurs and is continuing, the Trustee may pursue any available remedy
by proceeding at law or in equity to collect the payment of principal of and
interest on the Securities or to enforce the performance of any provision of
the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative.
SECTION 6.05. Waiver of Past Defaults.
Subject to Sections 6.08 and 9.02, the Holders of a majority in
principal amount of the Securities by notice to the Trustee may waive an
existing Default and its consequences. When a Default is waived, it is cured
and ceases.
SECTION 6.06. Control by Majority.
The Holders of a majority in principal amount of the Securities may
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on it.
However, the Trustee may refuse to follow any direction that conflicts with law
or this Indenture, is unduly prejudicial to the rights of other Securityholders
or would involve the Trustee in personal liability and the Trustee may take any
other action deemed proper by the Trustee which is not inconsistent with such
direction.
SECTION 6.07. Limitation on Suits.
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Except as provided in Section 6.08, a Securityholder may pursue a
remedy with respect to this Indenture or the Securities only if:
(1) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(2) the Holders of at least 25% in principal amount of the Securities
make a written request to the Trustee to institute proceedings in
respect of such Event of Default;
(3) such Holder or Holders offer to the Trustee reasonable indemnity
against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority in principal
amount of the Securities do not give the Trustee a direction
inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.08. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Security to receive payment of principal of or interest on such
Security, on or after the respective due dates expressed in such Security, or
to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of such
Holder.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee, any predecessor Trustee and the Securityholders allowed in any
judicial proceedings relative to the Company, its creditors or its property.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of the
Securities any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof, or to authorize
the
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Trustee to vote in respect of the claim of any Holder of the Securities in
any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to holders of Senior Indebtedness to the extent required by
Article 10;
Third: to Securityholders for amounts due and unpaid on the Securities
for principal and interest ratably, without preference or priority of any kind,
according to the amounts due and payable on or with respect to, the Securities
for principal and interest respectively; and
Fourth: to the Company or as otherwise required by applicable law or a
court of competent jurisdiction.
The Trustee may fix a record date and payment date for any payment by
it to Securityholders pursuant to this Section.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit other than the Trustee of an undertaking to pay the costs
of the suit, and the court in its discretion may assess reasonable costs,
including reasonable attorneys fees, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made
by the party litigant. This Section does not apply to a suit by the Trustee, a
suit by a Holder pursuant to Section 6.08 or a suit by Holders of more than 10%
in principal amount of the Securities.
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ARTICLE 7
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.01.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.06.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01.
(e) The Trustee may refuse to perform any duty or exercise any right
or power unless it receives indemnity satisfactory to it against any loss,
liability or expense.
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(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02. Rights of Trustee.
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate and/or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Certificate or Opinion.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights
or powers.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or an
Affiliate thereof with the same rights it would have if it were not Trustee.
Any Agent may do the same with like rights. The Trustee, however, must comply
with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities; it shall not be accountable for the Company's
use of the proceeds from the Securities; and it shall not be responsible for
any statement in the Securities other than its certificate of authentication.
SECTION 7.05. Notice of Defaults.
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If a Default occurs and is continuing and if it is actually known to
the Trustee or the Trustee has received written notice thereof, the Trustee
shall mail to each Securityholder a notice of the Default within 90 days after
it occurs. Except in the case of a Default in payment of principal of or
interest on any Security, the Trustee may withhold the notice if and so long as
it in good faith determines that withholding the notice is in the interests of
Securityholders.
SECTION 7.06. Reports by Trustee to Holders.
If required by TIA (S) 313(a), within 60 days after each [insert date]
beginning with [insert date], the Trustee shall mail to each Securityholder as
required by TIA (S) 313(c) a brief report dated as of such date that complies
with TIA (S) 313(a). The Trustee also shall comply with TIA (S) 313(b).
A copy of each report at the time of its mailing to Securityholders
shall be filed by the Trustee with the SEC and each stock exchange, if any, on
which the Securities are listed. The Company shall notify the Trustee when the
Securities are listed on or delisted from any stock exchange.
SECTION 7.07. Compensations and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation for its services as shall be agreed upon in writing. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee upon request for all
reasonable out-of-pocket expenses incurred by it. Such expenses shall include
the reasonable compensation and out-of-pocket expenses of the Trustee's agents
and counsel.
The Company shall indemnify the Trustee against any loss or liability
(including the fees and expenses of counsel) incurred by it in connection with
the administration of this trust and the performance of its duties hereunder.
The Company need not pay for any settlement made without its consent. The
Trustee shall notify the Company promptly of any claim for which it may seek
indemnification. The Company need not reimburse any expense or indemnify
against any loss or liability incurred by the Trustee through the Trustee's
negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities.
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When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(6) or (7) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any bankruptcy law.
SECTION 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the Securities may remove the Trustee by so
notifying the Trustee and the Company and may appoint a successor Trustee with
the Company's consent. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of at least 10% in principal amount of the Securities may petition
any court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have
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all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to Securityholders. The
retiring Trustee shall promptly transfer all property held by it as Trustee to
the successor Trustee, subject to the lien provided for in Section 7.07.
SECTION 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to another corporation,
the successor corporation without any further act shall be the successor
Trustee.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1). The Trustee shall always have a combined
capital and surplus of at least $50,000,000 as set forth in its most recent
published annual report of condition. The Trustee shall comply with TIA (S)
310(b).
SECTION 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated.
SECTION 7.12. Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations.
The Company may terminate all of its obligations under this Indenture
if all sums required to be paid hereunder have been paid and all Securities
previously authenticated and delivered (other than mutilated, destroyed, lost
or
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stolen Securities which have been replaced or paid) have been delivered to
the Trustee for cancellation or if:
(1) the Securities mature within one year or all of them are to be
called for redemption within one year under arrangements satisfactory
to the Trustee for giving the notice of redemption;
(2) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations sufficient to pay principal of and
interest on the Securities to maturity or redemption, as the case may
be. Immediately after making the deposit, the Company shall give
notice of such event to the Securityholders;
(3) the Company has paid or caused to be paid all sums then payable
by the Company to the Trustee hereunder as of the date of such
deposit; and
(4) the Company has delivered to the Trustee an Officers' Certificate
stating that all conditions precedent provided for herein relating to
the satisfaction and discharge of this Indenture have been complied
with. The Company may make the deposit only during the one-year period
and only if Article 10 permits it.
However, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07,
2.10, 2.11, 4.01, 4.02, 7.07, 7.08, 8.02, 8.03 and 8.04 shall survive until the
Securities are no longer outstanding. Thereafter the Company's obligations in
Sections 7.07 and 8.03 shall survive.
After a deposit pursuant to this Section 8.01, the Trustee upon
request shall acknowledge in writing the discharge of the Company's obligations
under the Securities and this Indenture except for those surviving obligations
specified above.
In order to have money available on a payment date to pay principal of
or interest on the Securities, the U.S. Government Obligations shall be payable
as to principal or interest on or before such payment date in such amounts as
will provide the necessary money.
"U.S. GOVERNMENT OBLIGATIONS" means direct non-callable obligations
of, or non-callable obligations guaranteed by, the United States of America for
the payment of which the full faith and credit of the United States of America
is pledged.
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SECTION 8.02. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.01. It shall apply the deposited money
and the money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal of and interest on
the Securities. Money and securities so held in trust are not subject to the
subordination provisions of Article 10.
SECTION 8.03. Repayment to Company.
The Trustee and the Paying Agent shall promptly pay to the Company
upon request any excess money or securities held by them at any time. The
Trustee and the Paying Agent shall pay to the Company upon request any money
held by them for the payment of principal or interest that remains unclaimed
for three years; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may, at the expense of the
Company, cause to be published once in a newspaper of general circulation in
the City of New York or cause to be mailed to each Holder notice stating that
such money remains and that, after a date specified therein, which shall not be
less than 30 days from the date of such publication or mailing, any unclaimed
balance of such money then remaining will be repaid to the Company. After
payment to the Company, Securityholders entitled to the money must look to the
Company for payment as general creditors unless an applicable abandoned
property law designates another person.
SECTION 8.04. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 8.01 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's obligations under this Indenture and the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to Section 8.01 until
such time as the Trustee or Paying Agent is permitted to apply all such money
or U.S. Government Obligations in accordance with Section 8.01; provided,
however, that if the Company has made any payment of principal of or interest
on any Securities because of the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Securities to receive
such payment from the money or U.S. Government Obligations held by the Trustee
or Paying Agent.
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ARTICLE 9
AMENDMENTS
SECTION 9.01. Without Consent of Holders.
The Company, with the consent of the Trustee, may amend or supplement
this Indenture or the Securities without notice to or the consent of any
Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Section 5.01;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; or
(4) to make any change that does not materially adversely affect the
rights of any Securityholder.
SECTION 9.02. With Consent of Holders.
The Company, with the consent of the Trustee, may amend or supplement
this Indenture or the Securities without notice to any Securityholder but with
the written consent of the Holders of at least a majority in principal amount
of the Securities then outstanding. Subject to Section 6.08, the Holders of a
majority in principal amount of the Securities then outstanding may waive
compliance by the Company with any provision of this Indenture or the
Securities without notice to any Securityholder. However, without the consent
of each Securityholder affected, an amendment, supplement or waiver, including
a waiver pursuant to Section 6.05, may not:
(1) reduce the percentage of Securities whose Holders must consent to
an amendment, supplement or waiver;
(2) reduce the rate of or extend the time for payment of interest on
any Security;
(3) reduce the principal amount of or extend the Stated Maturity of
any Security (including, without limitation, the optional redemption
provisions);
(4) change the place of payment where, or the coin or currency in
which, any Security or interest thereon is payable;
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(5) waive a default in the payment of principal of or interest on any
Security;
(6) reduce any amount payable on redemption at the option of the
Company or upon exercise of the Repurchase Right thereof or otherwise change
the redemption or Repurchase Right provisions or adversely affect any
repurchase rights, or impair the right of a Holder to institute suit for the
enforcement of any such payment on any Security when due; or
(7) make any change in Section 6.05, Section 6.08 or Section 9.02.
Promptly after an amendment under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing the
amendment. However, the failure to give such notice to all Holders, or any
defect therein, will not impair or affect the validity of the amendment.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment or supplement,
but it shall be sufficient if such consent approves the substance thereof.
The Indenture may not be amended to alter the subordination of any
outstanding Securities without consent of each holder of Senior Indebtedness
then outstanding that would be adversely affected thereby.
SECTION 9.03. Compliance with Trust Indenture Act.
Every amendment to this Indenture or the Securities shall comply with
the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder is a continuing consent by such Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made
on any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of a Security if the Trustee receives the
notice of revocation before the date the amendment, supplement or waiver
becomes effective. An amendment, supplement or waiver becomes effective in
accordance with its terms and thereafter binds every Securityholder.
After an amendment, supplement or waiver becomes effective with
respect to the Securities, it shall bind every Securityholder unless it makes a
change
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described in any of clauses (1) through (7) of Section 9.02. In that case the
amendment, supplement or waiver shall bind each Holder who has consented to it
and, provided that notice of such amendment, supplement or waiver is reflected
on a Security that evidences the same debt as the consenting Holder's Security,
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security.
SECTION 9.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder to deliver it to the Trustee. The Trustee
may place an appropriate notation on the Security about the changed terms and
return it to the Holder. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.
SECTION 9.06. Trustee Protected.
The Trustee need not sign any amendment, supplement or waiver
authorized pursuant to this Article that adversely affects the Trustee's
rights. The Trustee shall be entitled to receive and rely upon an Opinion of
Counsel and an Officers' Certificate that any supplemental indenture complies
with the Indenture.
ARTICLE 10
SUBORDINATION
SECTION 10.01. Agreement to Subordinate.
The Company agrees, and each Securityholder by accepting a Security
agrees, that the indebtedness evidenced by the Securities and the payment of
principal thereof and interest thereon are subordinated in right of payment, to
the extent and in the manner provided in this Article 10, to the prior payment
in full of all Senior Indebtedness and that the subordination is for the
benefit of the holders of Senior Indebtedness.
Money and securities held in trust pursuant to Article 8 are not
subject to the subordination provisions of this Article 10.
SECTION 10.02. Certain Definitions.
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"REPRESENTATIVE" means the indenture trustee or other trustee, agent
or representative for an issue of Senior Indebtedness.
"SENIOR INDEBTEDNESS" means the principal of, premium, if any, and
interest on (a) any and all other indebtedness and obligations of the Company
(including indebtedness of others guaranteed by the Company) other than the
Securities, whether or not contingent and whether outstanding on the date of
this Indenture or thereafter created, incurred or assumed, which (i) is for
money borrowed (including, without limitation, money borrowed under the Credit
Agreement); (ii) is evidenced by any bond, note, debenture or similar
instrument; (iii) represents the unpaid balance on the purchase price of any
property, business or asset of any kind; (iv) is an obligation of the Company
as lessee under any and all leases of property, equipment or other assets
required to be capitalized on the balance sheet of the lessee under GAAP; (v)
is a reimbursement obligation of the Company with respect to letters of credit;
(vi) is an obligation of the Company with respect to interest swap obligations
and foreign exchange agreements; or (vii) is an obligation of others secured by
a lien to which any of the properties or assets (including, without limitation,
leasehold interests and any other tangible or intangible property rights) of
the Company are subject, whether or not the obligations secured thereby shall
have been assumed by the Company or shall otherwise be the Company's legal
liability and (b) any deferrals, amendments, renewals, extensions,
modifications and refundings of any indebtedness or obligations of the types
referred to above; provided, however, that Senior Indebtedness shall not
include (i) the Securities; (ii) any indebtedness or obligation of the Company
which, by its terms or the terms of the instrument creating or evidencing it,
is expressly made or stated to be either pari passu with or subordinated to the
Securities; (iii) any indebtedness or obligation of the Company to any of its
subsidiaries and (iv) any indebtedness or obligation which both is incurred by
the Company in connection with the purchase of assets, materials or services in
the ordinary course of business and constitutes an unsecured trade payable.
SECTION 10.03. Liquidation; Dissolution; Bankruptcy.
Upon any distribution to creditors of the Company in a liquidation,
dissolution or winding up of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property, whether voluntary or involuntary:
(1) holders of Senior Indebtedness shall be entitled to receive
payment in full of the principal of and interest to the date of
payment on the Senior Indebtedness before Securityholders shall be
entitled to receive any payment of principal of or interest on the
Securities; and
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(2) until the Senior Indebtedness is paid in full, any distribution
to which Securityholders would be entitled but for this Article 10
shall be made to holders of Senior Indebtedness as their interests may
appear, except the Securityholders may receive securities that are
subordinated to Senior Indebtedness to at least the same extent as the
Securities.
SECTION 10.04. Company Not to Make Payments with Respect to
Securities in Certain Circumstances.
Except for payment in or distribution of securities that are
subordinated to Senior Indebtedness to at least the same extent as the
Securities, the Company shall not make any payment with respect to the
principal of or interest on any of the Securities or make any other payment
with respect to the purchase or other acquisition of any of the Securities:
(a) if there shall have occurred a default in the payment of the
principal of or interest on any Senior Indebtedness; or
(b) if there shall exist at the time of such payment, or such payment
would create, an event of default (or an event which, with the giving of notice
or the passage of time or both, would become an event of default) with respect
to any Senior Indebtedness which would permit the holders (or any specified
proportion of such holders) of such Senior Indebtedness to accelerate the
maturity thereof, and if notification of such default or event of default has
been given to the Company by a holder of such Senior Indebtedness or by a
trustee, agent or Representative for an issue of Senior Indebtedness; provided,
however, that this clause (b) shall not prevent the making of any such payment
(which is not otherwise prohibited by clause (a) of this Section 10.04) for
more than 89 days after a written notice of default shall have been given
unless the Senior Indebtedness in respect of which such event of default exists
has been declared due and payable in its entirety, in which case no such
payment may be made;
unless and until, in each case, whether described in clause (a) or clause (b),
such default or event of default shall have been cured or waived in the manner
required by the instrument relating to such Senior Indebtedness or shall
otherwise have ceased to exist.
Regardless of anything to the contrary herein, nothing shall prevent
(a) any payment by the Trustee to the Securityholders of amounts deposited with
it pursuant to Article 8 or (b) any payment by the Trustee or the Paying Agent
as permitted by Section 10.11.
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SECTION 10.05. Acceleration of Securities.
If payment of the Securities is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Indebtedness of
the acceleration.
SECTION 10.06. When Distribution Must Be Paid Over.
In the event that the Company shall make any payment to the Trustee of
the principal of or interest on the Securities at a time when such payment is
prohibited by Section 10.03 or 10.04, such payment shall be held by the
Trustee, in trust for the benefit of, and shall be paid forthwith over and
delivered to, the holders of Senior Indebtedness (pro rata as to each of such
holders on the basis of the respective amounts of Senior Indebtedness held by
them) or their Representative or the trustee under the indenture or other
agreement (if any) pursuant to which Senior Indebtedness may have been issued,
as their respective interests may appear, for application to the payment of all
Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior
Indebtedness in full in accordance with its terms, after giving effect to any
concurrent payment or distribution to or for the holders of Senior
Indebtedness.
If a distribution is made to Securityholders that because of this
Article 10 should not have been made to them, the Securityholders who receive
the distribution shall hold it in trust for holders of Senior Indebtedness and
pay it over to them as their interests may appear.
SECTION 10.07. Notice by Company.
The Company shall promptly notify the Trustee and the Paying Agent in
writing of any facts known to the Company that would cause a payment of
principal of or interest on Securities to violate this Article 10.
SECTION 10.08. Subrogation.
After all Senior Indebtedness is paid in full and until the Securities
are paid in full, Securityholders shall be subrogated to the rights of holders
of Senior Indebtedness to receive distributions applicable to Senior
Indebtedness to the extent that distributions otherwise payable to the
Securityholders have been applied to the payment of Senior Indebtedness. A
distribution made under this Article 10 to holders of Senior Indebtedness which
otherwise would have been made to Securityholders is not, as between the
Company and Securityholders, a payment by the Company on Senior Indebtedness.
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SECTION 10.09. Subrogation May Not Be Impaired by Company.
No right of any holder of Senior Indebtedness to enforce the
subordination of the indebtedness evidenced by the Securities shall be impaired
by any act or failure to act by the Company or by its failure to comply with
this Indenture.
SECTION 10.10. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness, the distribution may be made and the notice given to their
Representative.
SECTION 10.11. Rights of Trustee and Paying Agent.
The Trustee or Paying Agent may continue to make payments on the
Securities until it receives written notice of facts that would cause a payment
of principal of or interest on the Securities to violate this Article 10. Only
the Company, a Representative or a holder of an issue of Senior Indebtedness
that has no Representative may give the notice.
The Trustee shall be entitled to rely on the delivery to it of a
written notice by a person representing himself to be a holder of Senior
Indebtedness (or a Representative on behalf of such holder) to establish that
such notice has been given by a holder of Senior Indebtedness or a
Representative on behalf of any such holder. In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any person who is a holder of Senior Indebtedness to participate in
any payment or distribution pursuant to this Article 10, the Trustee may
request such person to furnish evidence to the reasonable satisfaction of the
Trustee as to the amount of Senior Indebtedness held by such person, the extent
to which such person is entitled to participate in such payment or distribution
and any other facts pertinent to the rights of such person under this Article
10, and if such evidence is not furnished the Trustee may defer any payment to
such person pending judicial determination as to the right of such person to
receive such payment or until such time as the Trustee shall be otherwise
satisfied as to the right of such person to receive such payment.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be liable to any such holder if it
shall mistakenly pay over or distribute to Securityholders or the Company or
any other
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person money or assets to which any holders of Senior Indebtedness
shall be entitled by virtue of this Article 10 or otherwise.
SECTION 10.12. Officers' Certificate.
If there occurs an event referred to in Section 10.03 or 10.04, the
Company shall promptly give to the Trustee an Officers' Certificate (on which
the Trustee may conclusively rely) identifying all holders of Senior
Indebtedness or their Representatives and the principal amount of Senior
Indebtedness then outstanding held by each such holder and stating the reasons
why such Officers' Certificate is being delivered to the Trustee.
SECTION 10.13. Obligation of Company Unconditional.
Nothing contained in this Article 10 or elsewhere in this Indenture or
in any Security is intended to or shall impair, as between the Company, its
creditors other than holders of Senior Indebtedness and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Securities the principal of and interest on the
Securities as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders of the Securities and creditors of the Company other than the holders
of the Senior Indebtedness, nor shall anything herein or therein prevent the
Trustee or the Holder of any Security from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article 10 of the holders of Senior Indebtedness in
respect of cash, property or securities of the Company received upon the
exercise of any such remedy. Upon any distribution of assets of the Company
referred to in this Article 10, the Trustee, subject to the provisions of
Sections 7.01 and 7.02, and the Holders of the Securities shall be entitled to
rely upon any order or decree by any court of competent jurisdiction in which
such dissolution, winding up, liquidation or reorganization proceedings are
pending, or a certificate of the liquidating trustee or agent or other person
making any distribution to the Trustee or the Holders of the Securities, for
the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
10. Nothing contained in this Article 10 or elsewhere in this Indenture or in
any Security is intended to or shall affect the obligation of the Company to
make, or prevent the Company from making, at any time except during the
pendency of any dissolution, winding up, liquidation or reorganization
proceeding, and except during the continuance of any default specified in
Section 10.04 (not cured or waived), payments at any time of the principal of
or interest on the Securities.
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ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with
another provision which is required to be included in this Indenture by the
TIA, the required provision shall control.
SECTION 11.02. Notices.
Any notice or communication by the Company or the Trustee to the other
is duly given if in writing and delivered in person, mailed by first-class mail
or by express delivery to the other's address stated in this Section 11.02. The
Company or the Trustee by notice to the other may designate additional or
different addresses for subsequent notices or communications.
Any notice or communication to a Securityholder shall be mailed by
first-class mail to his address shown on the register kept by the Registrar.
Failure to mail a notice or communication to a Securityholder or any defect in
it shall not affect its sufficiency with respect to other Securityholders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Securityholders, it
shall mail a copy to the Trustee and each Agent at the same time.
All notices or communications shall be in writing.
The Company's address is:
Brand Scaffold Services, Inc.
15450 South Outer Highway 40, #270
Chesterfield, Missouri 63017
Attention: Chief Executive Officer and President
The Trustee's address is:
________________________________
________________________________
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----------------------------
Attention: ___________________
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SECTION 11.03. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA (S) 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture the Company shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Each signer of an Officers' Certificate or an Opinion of Counsel may
(if so stated) rely, effectively, upon an Opinion of Counsel as to legal
matters and an Officers' Certificate as to factual matters if such signer
reasonably and in good faith believes in the accuracy of the document relied
upon.
SECTION 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of such person,
such condition or covenant has been complied with.
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SECTION 11.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for their respective functions.
SECTION 11.07. Legal Holidays.
A "LEGAL HOLIDAY" is a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the City of New York, in the State
of New York or in the city in which the Trustee administers its corporate trust
business. If a payment date is a Legal Holiday at a place of payment, payment
may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue on that payment for the intervening
period.
A "BUSINESS DAY" is a day other than a Legal Holiday.
SECTION 11.08. No Recourse Against Others.
No past, present or future director, officer, employee, agent,
manager, stockholder, or Affiliate, as such, of the Company shall have any
liability for any obligations of the Company under the Securities or this
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Securityholder by accepting a Security
waives and releases all such liability. Such waiver and release are part of the
consideration for the issuance of the Securities.
SECTION 11.09. Duplicate Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 11.10. Governing Law.
The laws of the State of New York, without regard to principles or
conflicts of law, shall govern this Indenture and the Securities.
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SECTION 11.11. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
SECTION 11.12. Successors.
All agreements of the Company in this Indenture and the Securities
shall bind its successors. All agreements of the Trustee in this Indenture
shall bind its successors.
SECTION 11.13. Separability.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby
and a Holder shall have no claim therefor against any party hereto.
SECTION 11.14. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
BRAND SCAFFOLD SERVICES, INC.
By:_________________________________
Title:
_________________, as Trustee
By:_________________________________
Title:
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EXHIBIT A
REGISTERED [Face of Security] REGISTERED
NUMBER DOLLARS
BRAND SCAFFOLD SERVICES, INC.
14.5% JUNIOR SUBORDINATED EXCHANGE DEBENTURE DUE 2008
BRAND SCAFFOLD SERVICES, INC., a Delaware corporation (herein called
the "COMPANY," which term includes any successor person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
_____________, or registered assigns, the principal sum of _____________
Dollars on March 31, 2008, and to pay interest thereon as provided on the
reverse hereof, until the principal hereof is paid or duly provided for.
Interest Payment Dates: o
Record Dates: o
The provisions on the back of this certificate are incorporated as if
set forth on the face hereof.
IN WITNESS WHEREOF, BRAND SCAFFOLD SERVICES, INC. has
caused this instrument to be duly signed under its corporate seal.
[SEAL] BRAND SCAFFOLD SERVICES, INC.
By:_________________________________
[Title]
By:_________________________________
[Title]
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned Indenture.
______________________, as Trustee
By:__________________________
Authorized Signatory
Dated: ________________
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[REVERSE OF SECURITY]
BRAND SCAFFOLD SERVICES, INC.
14.5% JUNIOR SUBORDINATED EXCHANGE DEBENTURE DUE 2008
This Security is one of a duly authorized issue of Securities of the
Company designated as its 14.5% Junior Subordinated Exchange Debentures due
2008 (hereinafter called the "SECURITIES"), limited in aggregate principal
amount to $[Insert an amount equal to the aggregate liquidation preference on
the 14.5% Senior Exchangeable Preferred Stock outstanding immediately prior to
Exchange Date] issued pursuant to the Indenture, dated as of [insert Exchange
Date] (hereinafter called the "INDENTURE"), between the Company and
__________________________________, as Trustee (herein called the "TRUSTEE,"
which term includes any successor trustee under the Indenture).
1. Interest. The Company promises to pay interest on the principal
amount of this Security at the rate per annum shown above. The Company will pay
interest quarterly in arrears on o, o, o and o of each year, commencing [insert
first of such dates to occur after date of Indenture], to the person in whose
name this Security is registered at the close of business on the preceding o,
o, o and o as the case may be. Interest on the Securities will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the date of original issuance of the Securities set forth on the
face of this Security. Interest will be payable to the holders of record as
they appear on the register of the Company kept by the Registrar on such record
dates, provided that holders of Securities called for redemption on a
redemption date falling between an interest payment record date and the
interest payment date shall, in lieu of receiving such interest on the interest
payment date fixed therefor, receive such interest payment together with all
other accrued and unpaid interest on the date fixed for redemption. Interest
will be computed on the basis of a 360-day year of twelve 30-day months. Prior
to the later of (i) September 30, 2001 and (ii) the first date on which cash
payment of interest on the Securities is permitted under the terms of the then
outstanding Senior Indebtedness and any other applicable legal or contractual
provisions binding on the Company or any of its subsidiaries (such later date,
the "CASH PAY DATE") the interest will be payable solely in the form of
additional Securities. After the Cash Pay Date, interest will be payable in
cash.
2. Method of Payment. The Company will pay interest on the Securities
(except defaulted interest) to the persons who are registered Holders of
Securities at the close of business on the record date set forth on the face of
this Security next preceding the applicable interest payment date. Holders must
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surrender Securities to a Paying Agent to collect principal payments. The
Company will pay principal and interest at the office or agency of the Company
maintained for that purpose in the Borough of Manhattan, The City of New York
and at any other office or agency maintained by the Company for such purpose in
money of the United States that at the time of payment is legal tender for
payment of public and private debts; provided, however, that at the option of
the Company, payment of interest on the Securities may be by check payable in
such money and mailed to a Holder's registered address.
3. Paying Agent and Registrar. Initially, the Trustee will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without notice. The Company may act in any such capacity.
4. Indenture. The terms of this Security include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb) (the
"ACT"), as in effect on the date of the Indenture. This Security is subject to
all such terms, and the holder hereof is referred to the Indenture and the Act
for a statement of such terms. Terms used herein which are defined in the
Indenture have the meanings assigned to them in the Indenture.
5. Optional Redemption. This Security may be redeemed on at least 30
and not more than 60 days' prior notice at the option of the Company on or
after September 30, 2001, in whole at any time or in part from time to time (in
any integral multiple of $1,000), at the redemption prices (expressed as a
percentage of principal amount) set forth below during the 12-month periods
beginning on September 30 of the years shown below, plus in each case an amount
equal to accrued and unpaid interest, if any, to (and including) the redemption
date:
Year Redemption Price
- ---- ----------------
2001................................. 107.25
2002................................. 104.83
2003................................. 102.42
2004................................. 100.00
2005................................. 100.00
2006................................. 100.00
2007................................. 100.00
In addition, this Security may be redeemed on at least 30 and not more
than 60 days' prior notice at the option of the Company prior to September 30,
1999, in whole at any time or in part from time to time (pro rata from each
Holder), at a redemption price equal to 114.5% of the principal amount plus an
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amount equal to accrued and unpaid interest, if any, to the date of redemption
with the proceeds of an Initial Public Offering.
6. Notice of Redemption. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder of Securities to be redeemed at his registered address. On and after the
redemption date, interest will cease to accrue on Securities called for
redemption.
7. Change of Control. In the event of a Change of Control (as
hereinafter defined),each Holder shall have the right, at the Holder's option,
to require the Company to repurchase such Holder's Securities including any
portion thereof which is $1,000 or any integral multiple thereof on the date
(the "REPURCHASE DATE") that is 45 days after the date of the Repurchase Right
Notice at a purchase price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to and including the Repurchase Date (the
"REPURCHASE PRICE").
Within 30 days after the occurrence of a Change of Control, the
Company is obligated to give notice of the occurrence of such Change of
Control, and of the procedure which such Holder must follow to exercise such
right. To exercise the redemption option, the Holder of a Security must deliver
on or before the 30th day after the date of the Repurchase Right Notice,
written notice to the Company of the Holder's exercise of such option together
with the Security or Securities with respect to which the option is being
exercised, duly endorsed for transfer. Exercise of the Repurchase Right by the
Holder of a Security will be irrevocable, unless the Company shall default in
making the repurchase payment when due, in which case a Holder who elects to
exercise the Repurchase Right will retain the right to convert such Security
into Common Stock until the close of business on the date such default is cured
and such Security is repurchased. If the Repurchase Date falls between any
interest payment record date and the next succeeding interest payment date,
Securities must be accompanied by payment of an amount equal to the interest
thereon which the registered Holder is to receive on such interest payment
date.
If any repurchase pursuant to the foregoing provisions constitutes an
"ISSUER TENDER OFFER" as defined in Rule 13e-4 under the Exchange Act, the
Company will comply with the requirements of Rule 13e-4, Rule 14e-1 and any
other tender offer rules under the Exchange Act which then may be applicable,
including the filing of an Issuer Tender Offer Statement on Schedule 13E-4 with
the SEC and the furnishing of certain information contained therein to the
Holders.
A-5
<PAGE>
A "CHANGE OF CONTROL" means the occurrence of any of the following
events: (i) any person (including any entity or group deemed to be a "person"
under Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), other than any
person or group comprised solely of the Initial Holders, has become the
beneficial owner, by way of merger, consolidation or otherwise, of 40% or more
of the voting power of all classes of voting securities of the Company or of
DLJ Brand Holdings, Inc. and such person or group has become the beneficial
owner of a greater percentage of the voting power of all classes of voting
securities of the Company or of DLJ Brand Holdings, Inc. than that beneficially
owned by the Initial Holders; (ii) a sale or transfer of all or substantially
all of the assets of the Company or of DLJ Brand Holdings, Inc. to any person
or group (other than any group consisting solely of the Initial Holders or
their Affiliates) has been consummated; or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors of the Company or of DLJ Brand Holdings, Inc. (together
with any new directors whose election was approved by a vote of a majority of
the directors then still in office, who either were directors at the beginning
of such period or whose election or nomination for the election was previously
so approved) cease for any reason to constitute a majority of the directors of
the Company or of DLJ Brand Holdings, Inc. as the case may be, then in office,
other than as a result of election and removal of directors pursuant to the
provisions of the Certificate of Designations or the Shareholders Agreement
governing the election and removal of directors. (Capitalized terms have the
meaning ascribed to them in the Indenture.)
8. Subordination. The Securities are subordinated in right of
payment, in the manner and to the extent set forth in the Indenture, to the
prior payment in full of all Senior Indebtedness. Each Holder by accepting a
Security agrees to such subordination and authorizes the Trustee to give it
effect.
9. Denominations, Transfer, Exchange. The Securities are in
registered form without coupons in denominations of $1,000 and whole multiples
of $1,000. The transfer of Securities may be registered and Securities may be
exchanged as provided in the Indenture. The Registrar may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents.
No service charge shall be made for any such registration or transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. The Registrar
need not exchange or register the transfer of any Security selected for
redemption. Also, it need not exchange or register the transfer of any
Securities for a period of 15 days before a selection of Securities to be
redeemed.
10. Persons Deemed Owners. The registered Holder of a Security may be
treated as its owner for all purposes.
A-6
<PAGE>
11. Merger or Consolidation. The Company may not consolidate with, or
merge into, or directly or indirectly transfer or lease all or substantially
all of its assets to, another person unless, among other things, the person is
a corporation; such corporation assumes by supplemental indenture all the
obligations of the Company under the Securities and the Indenture; and giving
effect to the transaction, no Default or Event of Default (as defined in the
Indenture) shall exist.
12. Amendments and Waivers. Subject to certain exceptions, the
Indenture or the Securities may be amended with the consent of the Holders of
at least a majority in principal amount of the Securities outstanding; and any
existing default may be waived with the consent of the Holders of a majority in
principal amount of the Securities. Without the consent of any Securityholder,
the Indenture or the Securities may be amended to cure any ambiguity, omission,
defect or inconsistency or to provide for uncertificated Securities in addition
to certificated Securities, to comply with Section 5.01 of the Indenture or to
make any change that does not materially adversely affect the rights of any
Securityholder.
13. Defaults and Remedies. An Event of Default is: a continuing
default for 15 days in payment of interest on the Securities; default in
payment of principal of the Securities when due; failure by the Company for 30
days after written notice to the Company by the Trustee or to the Company and
the Trustee by the holders of at least 25% in principal amount of the
outstanding Securities specifying such breach or default and requiring it to be
remedied and stating that such notice is a notice of default hereunder;
acceleration prior to maturity of other indebtedness in excess of an aggregate
of $15 million which acceleration is not rescinded or indebtedness is not paid
or discharged for 30 days after notice; the rendering of a final judgment or
judgments against the Company in excess of $15 million, which is not
discharged, satisfied or stayed within a period of 60 days after notice; and
certain events of bankruptcy or insolvency. If any Event of Default occurs and
is continuing, the Trustee or the Holders of at least 25% in principal amount
of the Securities may declare all the Securities to be due and payable
immediately. The Holders of a majority in principal amount of the Securities by
notice to the Trustee may waive a Default and its consequences. Securityholders
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Securities. Subject to certain limitations,
Holders of a majority in principal amount of the Securities may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Securityholders notice of any continuing default (except a default in payment
of principal or
A-7
<PAGE>
interest) if it determines that withholding notice is in their interests. The
Company must furnish an annual compliance certificate to the Trustee.
14. Trustee Dealings with Company. The Trustee under the Indenture,
or any banking institution serving as successor Trustee thereunder, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not Trustee.
15. No Recourse Against Others. A director, officer, employee, agent,
manager, stockholder or Affiliate, as such, of the Company shall not have any
liability for any obligations of the Company under this Security or the
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Securityholder by accepting a Security
waives and releases all such liability. The waiver and releases are part of the
consideration for the issue of this Security.
16. Authentication. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
17. Abbreviations. Customary abbreviations may be used in the name of
a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenant by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER
UPON WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE
INDENTURE. REQUESTS MAY BE MADE TO: Brand Scaffold Services, Inc.,
15450 South Outer Highway 40, #270, Chesterfield, Missouri 63017, Attention:
Corporate Secretary.
A-8
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to:
______________________________________________
(Insert Assignee's Soc. Sec. or Tax I.D. No.)
_________________________________________
_________________________________________
_________________________________________
_________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _________________________ agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
_______________________________________________________________________________
Date:___________________________ Signature(s):______________________
___________________________________
(Sign exactly as your name(s)
appear(s) on the other side of
this Security)
Signature(s) guaranteed by: ___________________________________
(All signatures must be guaranteed
by a member of a national securities
exchange or of the National
Association of Securities Dealers,
Inc. or by a commercial bank or
trust company located in the United
States)
A-9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security repurchased by the Company
pursuant to Section 4.08 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security repurchased by
the Company pursuant to Section 4.08 of the Indenture, state the amount to be
repurchased:
$___________________________
(in an integral multiple of $1,000)
Date____________________ Signature(s):______________________
___________________________________
(Sign exactly as your name(s)
appear(s) on the other side of
this Security)
Signature(s) guaranteed by: ___________________________________
(All signatures must be guaranteed
by a member of a national securities
exchange or of the National
Association of Securities Dealers,
Inc. or by a commercial bank or
trust company located in the United
States)
A-10
<PAGE>
EXHIBIT B
Form of Legend for Global Securities
Every Global Security authenticated and delivered hereunder shall bear
a legend in substantially the following form:
Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to Issuer or its
agent for registration of transfer, exchange, or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
A-11
<PAGE>
EXHIBIT 5
[Davis Polk & Wardwell Letterhead]
January 27, 1999
Brand Scaffold Services, Inc.
15450 South Outer Highway 40, #270
Chesterfield, Missouri 63017
Ladies and Gentlemen:
We have acted as special counsel to Brand Scaffold Services, Inc. (the
"Company") in connection with the Company's shelf registration of 209,000
shares of its 14.5% Senior Exchangeable Preferred Stock due 2008, $0.01 par
value per share (the "Preferred Stock") and $26,881,662 aggregate principal
amount of the Company's 14.5% Junior Subordinated Exchange Debentures due 2008
(the "Debentures") issuable upon exchange of the Preferred Stock.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments as we have deemed
necessary or advisable for the purpose of rendering this opinion.
Upon the basis of the foregoing we are of the opinion that:
1. The Preferred Stock has been validly issued and duly
authorized by the Company and is fully paid and
non-assessable.
2. The Debentures issuable upon exchange of the Preferred Stock,
when issued and validly executed, authorized and delivered in
exchange for the Preferred Stock, will be valid and binding
obligations of the Company enforceable against the Company in
accordance with their terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or
<PAGE>
Brand Scaffold Services, Inc. 2 January 27, 1999
similar laws affecting creditors' rights generally and
equitable principles of general applicability.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of
the United States of America and Delaware corporate law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement relating to the Preferred Stock and the Debentures.
We also consent to the reference to us under the caption "Legal Matters" in the
Prospectus contained in such Registration Statement.
Very truly yours,
Davis Polk & Wardwell
<PAGE>
BRAND SCAFFOLD SERVICES, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, 1998
DECEMBER 31, 1997 (UNAUDITED)
----------------- -----------
<S> <C> <C>
Income (loss) before income taxes $(5,341) $2,335
Interest expense 15,422 12,712
Capitalized interest - -
One-third of rents payable in the next year 445 372
---------------------- ------------------
Income (loss) before income taxes, interest and one-third rents 10,526 15,419
====================== ==================
Interest expense 15,422 12,712
One-third of rents payable in the next year 445 372
Preferred stock dividends 4,172 3,512
---------------------- ------------------
Interest expense plus one-third of rents plus preferred stock 20,039 16,596
dividends ====================== ==================
Ratio of earnings to fixed charges and preferred stock dividends 0.53 to 1 0.93 to 1
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
for Rust Scaffold Services Inc. and Subsidiaries and Brand Scaffold Services
Inc. and Subsidiaries (and to all references to our Firm) included in or made a
part of this registration statement.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
January 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements as of and for the year ended December 31, 1997 and the nine months
ended September 30, 1998
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-END> DEC-31-1997 SEP-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 2,217 5,117
<SECURITIES> 0 0
<RECEIVABLES> 30,691 32,015
<ALLOWANCES> (1,000) (1,005)
<INVENTORY> 0 0
<CURRENT-ASSETS> 33,496 39,838
<PP&E> 170,479 184,776
<DEPRECIATION> (14,938) (24,422)
<TOTAL-ASSETS> 197,543 206,681
<CURRENT-LIABILITIES> 29,289 26,641
<BONDS> 0 130,000
31,140 34,651
0 0
<COMMON> 0 0
<OTHER-SE> (5,176) (11,260)
<TOTAL-LIABILITY-AND-EQUITY> 197,543 206,681
<SALES> 0 0
<TOTAL-REVENUES> 160,660 147,782
<CGS> 0 0
<TOTAL-COSTS> 122,638 113,038
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 842 191
<INTEREST-EXPENSE> 15,422 12,712
<INCOME-PRETAX> (5,341) 2,335
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,341) 2,335
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 4,329
<CHANGES> 0 0
<NET-INCOME> (5,341) (1,994)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
